Preparation is one of the cornerstones of financial security. If you hold a Traditional IRA, you need to be aware of the Required Minimum Distribution (RMD) aspect of your account that starts when you reach age 701/2
. Check out the recent Part One article
for a quick primer on understanding RMDs.
Satisfying your RMD can be pretty straightforward when your account holds cash or easily liquidated assets such as stocks. If your IRA’s value is primarily in alternative assets, such as real estate or promissory notes, you might be faced with a new challenge as those assets are illiquid. It is important to remember if you hold more than one Traditional IRA, you will receive a RMD notice from each custodian but you do not have to take funds from each account. For example, if you have two Traditional IRAs, one with illiquid alternative assets and one with cash and/or traditional assets, you can take the combined RMD total from one account.
If you find you do not have enough or any cash left in your IRA, but your account holds assets with value, you still need to meet your RMD requirements. If you find yourself in this position, reaching out to a qualified tax advisor can be in your best interest to review your options, especially if you are strongly considering doing nothing and dealing with the penalties at a later date. This situation is one of the reasons addressing your RMD as early in the year as possible can be to your advantage. When your account holds an asset such as real estate, your options may center on either:
Selling the asset and taking the RMD from the cash proceeds of the sale
Taking the asset or a portion of the asset as the taxable distribution and holding the asset personally going forward
A qualified advisor can review the aspects of each option to help you make the best decision possible. If you find you will distribute a portion of the asset personally, there is a process you need to follow to make sure the asset’s value is up to date and you have the asset re-titled to reflect the change of ownership. You also need to contact Equity Trust (888-382-4727, option 5) to determine which internal forms are needed to facilitate the distribution, revaluation, or sale of the asset – depending on the direction you take to address the situation.