We all have busy schedules….especially going into the end of the year and holiday season. In that “spirit”,I am certainly not going take up too much of your valuable time. But, as an IRA account owner who has a self-directed IRA or self-directed IRA LLC, there are some end of the year steps you may want (and need) to take.
Beneficiaries Up to Date? — I actually see more issues with this topic with a self-administered 401(k) plan where the trustee flat out forgets to complete and name the beneficiaries of their 401(k) plan. At least with an IRA, you are completing the applications for the custodian, which would include a beneficiary form.
However, saying that, do IRA account owners need to review this annually? Yes. There are countless times when the IRA account owner gets divorced, and then fails to update their beneficiary form to remove their ex-spouse. Of course, in that rare case where one wants to give their ex-spouse their IRA assets upon death, well no one is saying that they can’t….but, I think we would all agree it is rare. So, reason #1 for many to review their beneficiaries and, if necessary, amend that beneficiary election.
Second, and I see this often, an IRA account owner will name their spouse as the primary beneficiary, but then name their minor children as contingency, or secondary, beneficiaries. One should always review the pros and cons of naming a minor child as a beneficiary. In all honestly, none of us like to think of death and, presumably, the well intended parent just is believing that naming their minor child will never be an issue…or hope it is a never an issue. But, what happens if it is?
Minors can’t own property in their name. The law prohibits an IRA custodian from directly interacting with minors. I am not an attorney, but a will, in and of itself, will not satisfactorily address this sticky issue either as a will only deals with probatable assets, with the assets of an IRA being exempt from probate. Oh, what to do?! If you fall into this “camp”…just a good reason to visit with an attorney on the options available to you in either naming or not naming your minor children as beneficiaries.
Fair Market Valuation (FMV) — As an IRA account owner, you surely understand during the application process that an FMV on the value of the IRA’s assets be executed each year. Of course, with assets like mutual funds, etc. this is not a difficult proposition. But, you are a self-directed IRA account owner. You are interested in your IRA holding non-traditional assets (e.g., real estate), or else you would not have established one.
It is incumbent upon you to secure an accurate FMV on the assets of your IRA….and, in many cases, that involves an FMV secured through a third-party independent source. Further, when there are delicate issues of FMV values affecting RMDs….this can become a very big deal, very quickly.
Updating Your Personal Information — Similar to looking at your beneficiary designation, this is a simple and oft overlooked task by an IRA account owner. Have you moved? Changed your email address? Gotten married or divorced (this ties in with beneficiary changes)? You get the gist.
Of course, every custodian has either paper or online access for you to update your personal information. Don’t forget to do this as needed.
RMDs (Required Minimum Distributions) — The IRS wants their money! So, if you are over the age of 70 1/2 and have a traditional IRA, 401(k), 457, etc…..the IRS will be knocking on your proverbial door. Bottom line, with any of these plans, you will need to take an RMD. Word to the wise…talk to your CPA or financial advisor on what on your tax responsibilities.
Are there other things for you to consider….of course. But, this simple list hopefully assists you in an end of year review of your self-directed IRA.
As always, the information is intended to be educational in nature. It is not intended, nor should it be interpreted as any form of tax, legal, financial or investment advice. Always consult with the respective professional who is best suited to assist you.