Roth Conversion for a Specialty Asset
Client holds a royalty investment in IRA, and has completed a Roth conversion so that future income payments from the Royalty will be deposited in his Roth IRA. An independent valuation on the private investment was done, custodian of IRA will not issue a 1099R based on outside valuation and conversion assets not held and valued on their system.
Account seems ok with using the Roth Conversion signed and dated form and the valuation in terms of reporting the roth conversion for income purposes to IRS. Has anyone encountered this situation, any comment on best practices ? Thank you.
Permalink Submitted by Alan - IRA critic on Wed, 2019-11-13 19:33
Since the custodian is responsible for determining the value of IRA assets that they hold (either with or without assistance from the IRA owner) and also responsible for issuing a 1099R to report all distributions, they should not have processed a distribution if they were not going to accept the independent valuation. The IRS will know about this when there is no matching 1099R for the 5498 reporting the conversion contribution. And since conversions can no longer be recharacterized, the client will end up in tax limbo. The custodian should not be holding any assets for which they cannot meet their obligations under the tax code. That includes any assets for which they do not have a procedure for determining the valuation at every year end or at the time a distribution is made. Were these royalties acquired by a different custodian, and then transferred to this custodian?
Permalink Submitted by Tracy Bird on Sun, 2019-11-17 14:03
yes, in some sense. original custodian was merged with current custodian. It is a bit murky in terms of how the original royalty asset came to be owned in the IRA, appears to be via estate.