The flexibility and freedom of self-directed retirement comes with inherent responsibilities for all parties. You, the account holder, must conduct due diligence on your potential investments. Among other custodial duties, IRA providers like New Direction Trust Company are required to disclose the value of your retirement plan to the IRS on an annual basis. The timely and accurate reporting of these values can prevent audits and keep the IRS happy. In our experience, a happy IRS means happy retirement investors.
All retirement plan providers are required to report fair market valuations; alternative assets don't garner special attention from the IRS in this regard. Publicly traded stocks and mutual funds bear a defined market value, while alternative holdings like real estate and closely-held limited liability companies (LLCs) do not. As such, you'll need to incorporate a more hands-on approach in obtaining a fair market valuation of assets in your IRA or 401(k).
How can you easily acquire a fair market valuation? Despite the participatory nature of self-directed investing, you're not required to conduct research and assess a value yourself. In fact, the IRS prohibits you from doing so. You must instead elicit the services of a qualified professional with expertise in the field of your chosen investment. Such professionals include, but aren't limited to:
Once the value of your asset has been determined, you must submit our Fair Market Valuation Form and your valuator must provide supporting documentation. A formal appraisal, a comparative market analysis, or a copy of a subscription agreement are all valid options. Invalid supporting documentation includes e-mail communication from your valuator, a Schedule K-1, marketing materials, or expired documents.
The valuation process will depend on the asset type. If your retirement plan owns a closely-held LLC, you must identify any assets owned by the entity and provide their fair market values as if they were individual assets in your account (even though the LLC itself is the plan-held asset). Cash holdings must be included in the valuation, any liabilities must be listed, and our Fair Market Valuation Form (Closely-Held LLC) must be submitted.
For real estate, the supporting documentation examples listed above will likely apply. Broker opinion letters or valid documentation from your local county assessor's office could also be submitted. Certain alternative IRA investments may entail a less-complicated fair market valuation process, while others may not require you to undergo the process at all. If your retirement plan owns precious metals, you're not required to submit an independent valuation because the market values ("spot values") of gold, silver, platinum, and palladium are readily available and relatively consistent.
IRS specifications for fair market value submissions may change over time, so New Direction Trust Company will always stay up-to-date on revised regulations and will help you simplify the process in any way possible. For more information about fair market valuations and acceptable documentation, please feel free to give us a call at 877-742-1270 or send us an e-mail at firstname.lastname@example.org.