2019 Tax Reporting for Self-Directed Retirement Accounts
The primary advantage of having a self-directed IRA is that you have total control of the IRA investments. You have control whether choose to make traditional asset investments, such as stocks, bonds and mutual funds. But you also have control if you make alternative asset investments, which includes real estate. A self-directed IRA gives you enormous flexibility as well as retirement account diversification.
However, one of the best parts of using a self-directed IRA to make investments is that there is really no annual IRS administration regarding the self-directed IRA.
The IRA custodian performs the primary administration functions on a self-directed IRA. In other words, you can leave the self-directed IRA tax reporting up to the specialists. Pursuant to Section 408 of the Internal Revenue Code (IRC) three institutions can establish a self-directed IRA:
- Bank – ex., Wells Fargo
- Financial institution – ex., Vanguard
- Authorized trust company – ex., IRA Financial Trust
A bank, financial institution or authorized trust company will both establish and administer the account.
The main difference is, a traditional bank or financial institution will not allow you to use your IRA to invest in alternative assets. This includes real estate or cryptocurrencies. Whereas, a self-directed IRA custodian will administer and custody your IRA. This allows to you to invest in what you know and understand in a tax advantageous manner.
Self-Directed IRA Tax Reporting with a Self-Directed Custodian
For Self-directed IRA Tax Reporting, you will need A self-directed IRA custodian. This is a non-fiduciary self-directed IRA & 401(k) custodian that does not sell investment products or offer any investment advice. A self-directed IRA simply facilitates and administers your self-directed retirement account for one low flat fee with no account valuation fees.
The self-directed IRA custodian will take care of all IRS reporting with respect to your IRA, including the filing of the 2019 IRS Forms 5498 and any 1099R forms.
The two main forms of administration services a self-directed IRA custodian provides is the filing of the IRS Form 5498 and 1099-R.
The information on 2019 IRS Form 5498 is submitted to the Internal Revenue Service by the trustee (IRA custodian) of your IRA. The form reports:
- Contributions, including any catch-up contributions
- Required minimum distributions (RMDs)
- The fair market value (FMV) of the account
The IRS Form 5498 gives the market value of all assets and cash held within the client account for the previous year. This is used for tax reporting purposes. The IRA custodian will forward IRS Form 5498 to the IRS electronically by May 31 of the current year for the previous year.
There is one main purpose of filing the Form 1099-R for the purpose for self-directed IRA tax reporting. This is to inform the IRS that a distribution, rollover, or conversion took place regarding the self-directed IRA. The self-directed IRA custodian will complete and file the IRS Form 1099-R to notify the IRS that a distribution or reportable event has took place with respect to the self-directed IRA.
The deadline to file IRS Form 1099-R was February 28, 2019.
The most common reason for filing the IRS Form 1099-R for a self-directed IRA is as follows:
- Taxable distribution
- Roth conversion
- Required minimum distribution
- Rollover from the self-directed IRA custodian to a 401(k) plan
Get in Touch
Now that you know about the lack of annual administration in connection with the establishment of a self-directed IRA, contact IRA Financial Group directly at 800-472-0646 to get started. You can also fill out the form and speak directly with a self-directed IRA specialist if you have questions prior to starting a self-directed IRA with IRA Financial.