Inherited IRA RMD Problem
My wife inherited an IRA in late 2017 from her father who passed away. The IRA is shares in an LLC that bought development property in Mexico. The development of the property has stalled due to a variety of problems. The records provided to us from the IRA custodian shows the asset value of the shares at $134,000, with a cash value of $1.27. It is my understanding that we are required to take an RMD for tax purposes and will be penalized if we fail to do so. My question is does the IRS require the RMD for the cash value of the shares, or the asset value?
The other problem is how do we get out from under this property? The LLC managers are either unavailable to return our calls, or provide no solution to our dilemma saying they are working with their attorney to find solutions (for the last year and 1/2). At this point, we are willing to give away our shares to avoid the tax problems that we may be facing. To make matters worse, the custodian of the account is charging us account maintenance fees every quarter. We are basically paying fees for nothing in return. Any advice would be extremely helpful. –Mike
Permalink Submitted by Alan - IRA critic on Fri, 2019-04-05 15:00
With sufficient documentation, she can probably wait until the property is liquidated, then make up all the RMDs and file a 5329 requesting waiver of the penalty for reasonable cause. Another possibility is the distribution of the shares from the IRA in kind to meet the annual RMD. Those shares would then be held in a taxable brokerage account. The self directed IRA custodian for this inherited IRA is responsible for reporting a year end fair market value to your wife and the IRS. That figure determines the RMD, not the cash value. The custodian should clearly report on an IRA statement, letter, or Form 5498 what the value is for RMD calculation purposes (the FMV). To do this a periodic appraisal is required, sometimes annually, and the cost of the appraisal is normally deducted from the IRA, but there is no liquidity from which to deduct. This will eventually cause problems, if it hasn’t already.