RMD for Self Directed IRA

Submitted by Dennis Prout on Mon, 2013-12-09 17:21

A client rolled real estate previously held in a retirement plan through her business to a self directed IRA in 2013. The properties all have mortgages. However, the mortgages are still in the name of the business retirement plan, not the IRA. The client does not want to re-fi the mortgages to get them in the name of the IRA because she will end up with a higher interest rate on the new mortgage, on top of playing closing costs.

1) For purposes of calculating the RMD, is the prior year 12/31 value determined by subtracting the mortgage balance from the market value of the real estate?

2) For tax reporting purposes by the IRA custodian, if the client does not re-fi the mortgages in the name of the IRA, will the IRA custodian simply report the fair market value of the real estate to the IRS for year end reporting? If so, what are the consequences.

Thanks!



Submitted by Alan - IRA critic on Mon, 2013-12-09 18:39

  •  1)  Yes. This would also be the value if the IRA was converted to a Roth IRA.
  •  2)  Hopefully, client is using a large and professional self directed IRA custodian, who can provide advise, possibly file Form 990 for any UBIT due, and otherwise assist client in avoiding prohibited transactions. The IRS is closely watching self dealing and valuations when it comes to self directed IRAs. Hard to say at what point failure to get a proper non recourse loan in the name of the IRA trustee becomes a prohibited transaction. Client needs to follow the advice of the self directed custodian to have the best chance of avoiding costly IRS audits and/or penalties. If the client has the wrong custodian to avoid these risks, they should first transfer the IRA to a large and experienced custodian.

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