RMD for SDIRA

Submitted by Howard Patterson on Mon, 2019-12-02 19:41

What is the RMD for a Self Directed IRA that holds real estate (rental property) for year 1 and for subsequent years 2,3 etc.? How are amounts calculated?



Submitted by Alan - IRA critic on Mon, 2019-12-02 20:09

  • Basically, it is the same as for any other IRA. The RMD for year one is based on account values on the prior 12/31. Once real property is held in a SD IRA, the custodian is responsible for determining the value of that real estate at the end of each year. Appraisals will be required on a frequency determined by the custodian and the costs of such must be paid for by the SD IRA account. The custodian may or may not require certain data from the SD IRA owner to assist in determining this value, and it must be reported on Form 5498 along with a box showing that RE is held in the IRA.
  • Per the RMD aggregation rules, the RMD for any IRA can be satisfied by distributions from a combination of any other IRAs. A SD IRA holding real estate will have to also include enough cash to cover the costs of insurance, legal, repairs, property taxes, etc since all expenses related to the property must be paid from the specific IRA. In addition, if the SD IRA is the only IRA, there will have to be liquidity to cover the annual RMDs. So these accounts need to include sufficient cash or liquid assets to cover all related costs and RMDs.

Submitted by Howard Patterson on Mon, 2019-12-02 22:41

So it appears that a valuation would be required by the custodian,periodically, to determine a value (probably annually) to Satisfy IRS. Annual appraisal cost could substantially impair return on investment in many situations. A cost that should be considered in looking at SDIRA’s  at RMD time. 

Submitted by Alan - IRA critic on Mon, 2019-12-02 23:46

Maybe not annually. They might update the last appraisal using apprisal firm update factors for a couple years between actual appraisals. They would probably also ask for rental income on the property as that can affect value. Probably the two largest downsides of real estate in an IRA are the loss of depreciation deductions and loss of cap gain rates when you take IRA distributions. There is also the risk of a prohibited transaction. For example you must hire out all work. You cannot do any repair work yourself and cannot use the property at any time for personal use of yourself or certain relatives.

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