Checkbook IRA: Year-End 2017

Happy New Year to All Checkbook Control IRA Investors!

2017 was an exciting year – from the explosive emergence of Cryptocurrency to Tax Reform – we in the Self-Directed IRA community have had a stake in the evolution of the investment and tax landscape. In this post we’ll highlight how 2017 regulatory events relate to Checkbook IRA investors and provide some year-end IRA-LLC planning pointers.

SDIRA Annual Valuation

By now, it’s likely you’ve received year-end valuation requests from your respective Self-Directed IRA custodians. If you haven’t received such a request, check your spam folder and reach out to your custodian. Your custodian reports the value of each IRA it holds to the IRS on Form 5498.

What is the significance of the annual IRA valuation?

The significance of the IRA valuation depends on whether or not it is required for a taxable event. Taxable events that require Fair Market Valuation (FMV) of IRAs are (a) in-kind IRA taxable distributions, (b) required minimum distribution calculations, and (c) Roth conversions. However, even in the absence of taxable import, the IRS requires annual valuation reporting. Among other things, this helps the Treasury Department calculate future tax revenue streams.

For fair market valuations related to taxable events, you’ll want to use a more rigorous valuation methodology.

What is Fair Market Value for IRA valuation purposes?

The fair market value is the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts. 26 CFR § 20-2031-1 (b).

How is FMV determined for an LLC?

The starting point for calculating FMV of an LLC is the FMV of all the assets held by the entity, less all liabilities of the entity. When contemplating a taxable event within your IRA or Solo 401K a qualified appraisal should be obtained. In the absence of such taxable events, valuation requirements vary from custodian to custodian.

What should I do to regarding the FMV requirement of my SDIRA?

You should determine your custodian’s requirements and calculate the FMV accordingly. Professional assistance may or may not be required.

SDIRA Contribution Deadline

IRA Contributions for a particular year can be made at any time during the year or by your personal tax-filing due date for that year, not including extensions. For 2017 contributions, the deadline is April 17, 2018.

SDIRA Saver’s Credit

Some investors may be eligible for a tax credit, calculated as a percentage of their annual IRA contribution. The chart below outlines the credit values and eligibility requirements for 2017.

2017 Saver’s Credit

Credit Rate Married Filing Jointly

AGI not more than:

Head of Household

AGI not more than:

All Other Filers

AGI not more than:

50% of your contribution $37,000 $27,750 $18,500
20% of your contribution $37,001 – $40,000 $27,751 – $30,000 $18,501 – $20,000
10% of your contribution $40,001 – $62,000 $30,001 – $46,500 $20,001 – $31,000
0% of your contribution more than $62,000 more than $46,500 more than $31,000


SDIRA Excess Contributions

What is an Excess Contribution to an IRA?

An excess IRA contribution occurs if you:

  • Contribute more than the contribution limit to either a Traditional or Roth IRA
  • Make a regular IRA contribution to a traditional IRA at age 70½ or older.
  • Make an improper rollover contribution to an IRA.

What is the tax treatment of an IRA excess contribution?

Excess contributions are taxed at 6% per year as long as the excess amounts remain in the IRA. The tax can’t be more than 6% of the combined value of all your IRAs as of the end of the tax year.

Can excess contributions be remedied?

To avoid the excess contributions tax:

  • withdraw the excess contributions from your IRA by the due date of your individual income tax return (including extensions); and
  • withdraw any income earned on the excess contribution.

SDIRA Required Minimum Distributions

Your custodian should have contacted you regarding the calculation and distribution of any Required Minimums – Required Minimum Distributions, or RMDs.

If you are age 70½ or older this year, you must take a 2017 required minimum distribution by December 31, 2017 (by April 1, 2018, if you turned 70½ in 2017) based on any Non-Roth IRAs that you have. The RMD rules may apply to you if you are younger than that but have an Inherited IRA.

What happens if I didn’t take a Required Minimum Distribution?

A 50% excise tax on any required minimum distribution is applied to any RMD that you fail to take on time.

Is there a remedy for missed RMDs?

Section 4974(d) of the IRC provides for waiver of the RMD penalty by the IRS if the missed RMD was (a) due to reasonable error and (b) reasonable steps are taken to remedy the shortfall.

A waiver must be obtained from the IRS using Form 5329 and attaching a Letter of Explanation.

Tax Reform

The Tax Cuts and Jobs Act, TCJA, was drafted, implemented, and signed into law with incredible speed. As the new tax law evolved, several proposals affecting tax-advantaged savings accounts were discussed – what made into the final bill and what did not?

What Made It?

Roth Recharacterizations Of Prior Conversions Repealed: Roth reconversions are no longer allowed. Roth reconversions are the reversal of a prior Traditional IRA Roth Conversion in which pre-tax IRA funds were rolled into a Roth IRA. Prior rules allowed for such conversions to be “recharacterized” – effectively an “undo” button that would permit a Roth conversion to be switched back to its original source IRA. The TCJA repeals the rules permitting recharacterizations of Roth conversions, effective as of the start of 2018.

The rule only limits recharacterizations of Roth conversions – and not of Roth contributions – permitting those who mistakenly make a new Roth contribution and later discover they’re over the income limits to recharacterize it back to a traditional IRA.

UBIT Aggregation and Segregation Changes: Under the new law, tax-exempt entities that are subject to tax on their UBTI will be required to segregate their taxable income and loss for each unrelated trade or business activity for purposes of determining their UBIT. Expenses and losses generated by one business may no longer be used to offset income derived from another. For most self-directed retirement plan investors this change will have no impact. For some, however, some additional tax planning may be advisable.

Changes to 529 College Savings Plans: 529 plan distributions can now be used tax-free for private elementary and secondary school expenses (K-12) – up to $10,000 in annual distributions per student for K-12 qualifying expenses.

What Did Not?

401(k) Pretax Contribution Limits Were NOT Limited: As reported in several media outlets in late October 2017, there was talk of limiting employee tax-deductible contributions to 401(k) Plans to $2,400, requiring employee contributions above that threshold to be Roth. This prompted President Trump to tweet, on October 23There will be NO change to your 401(k). This has always been a great and popular middle class tax break that works, and it stays!

Needless to say, this proposal never made it into any legislation. Thankfully!

Coverdell ESAs/IRAs, Hope Scholarship and Lifetime Learning Credits, American Opportunity Tax Credit Remain Unchanged: The original House GOP tax plan proposed a substantive overhaul of educational tax incentives, including the repeal of the Hope Scholarship and Lifetime Learning Credits, the disallowment of new contributions to Coverdell Education Savings Accounts (also known as Education IRAs). The final version of the Tax Cuts and Jobs Act included none of these provisions.

We at ReSure LLC and look forward to continue to serve all your Checkbook IRA, Solo 401k, and financial planning needs. Should you have you any questions, please reach out to us.

Wishing all a happy, healthy, and prosperous 2018!