Illiquid investment in IRA subject to RMD
Client owns a small IRA that holds a non-publicly traded hotel REIT sold to her by her prior advisor.
The REIT suspended both distributions and redemptions indefinitely last summer.
She will be turning 72 next year and the IRA has neither cash, nor the ability to generate cash, in order to satisfy the pending RMDs.
Has anyone encountered a similar situation and is there any way to work with the IRS in this circumstance?
Permalink Submitted by Alan - IRA critic on Mon, 2022-02-14 19:17
If she has no other IRAs from which she can satisfy her RMD for all IRAs, this advisor has done her no favors. She has until 4/1/2024 to complete her 2023 RMD, so perhaps that extra time will allow the REIT to recover and be sold. Otherwise, she should ask her IRA custodian if they know of any potential buyers of the REIT at a discount. If her RMD is late, she will be able to file Form 5329 after selling the REIT, and the IRS will likely waive any penalty as this is a reasonable cause for waiver. Meanwhile, her IRA custodian must attempt to determine at market value for the REIT at the end of each year and report this value on Form 5498. If depressed, that value will reduce her RMDs. Once any late RMDs are made up, the total will be taxable in the year received.
Permalink Submitted by Jeff Deiss on Mon, 2022-02-14 19:40
Thank you . Very helpful
Permalink Submitted by Bruce Steiner on Thu, 2022-02-24 23:51
Hi Jeff. NIce to see you here. It’s been a while. I hope all is well.
Can she distribute a pro rata share of that investment in kind to satisfy her RMD. If so, while the value will matter for income tax purposes, it won’t matter for purposes of satisfying her RMD.
Bruce Steiner