Many IRA owners invest in assets other than the usual stocks, bonds, cash, and mutual funds. In fact, the tax code allows for IRAs to invest in just about anything out there except for collectibles, life insurance, and S-corporation stock. But when you invest in those “other assets,” what are they really worth?

If you invest $1,000 in a publicly traded stock, it is easy to determine the value of your investment at any given point in time. You can look it up on your computer, smart phone, tablet or watch. But when you invest in real estate, promissory notes, a start-up business, a master limited partnership, an LLC, or any of the other investment options available, it is not so easy to determine the value of that investment. Many times the IRA custodian carries the investment on its books as the amount you originally invested. The value never changes from year to year.

This works out in your favor if the investment goes up in value because you are paying the custodian less in fees and your RMDs and subsequent taxation will be less, but what happens when it does not? What happens if that investment totally tanks and its value, so you are told or suspect, goes to zero?

Just telling the IRA custodian that the investment is worthless is not going to work. You need proof. You need an outside, impartial appraisal of the value of the asset. This is a cost to the IRA. You cannot pay for the appraisal; the IRA must pay for it.

Having the IRA custodian distribute the asset to you also has its problems. When an IRA asset is distributed in kind, the custodian must issue a 1099-R to the IRA owner showing the value of the asset on the date of distribution. Since the value on the IRA custodian’s books is the amount of the original investment, that is the value they will put on the 1099-R. And, IRS gets a copy of that 1099-R. IRS will be expecting you to include that amount in your income and to pay income tax on it.

Sure, you can try telling IRS that the asset is really worth nothing, but, again, you will need proof. The burden is on the IRA owner to show what the true value of the asset is.

What is your IRA worth? It is worth what the IRA custodian puts on the 1099-R that goes to IRS, unless you can prove otherwise.


By Beverly DeVeny, Director of Retirement Education’s-your-ira-worth?

Gregory Ricks & Associates is a Registered Investment Advisor.  We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial advice. All investments are subject to risk, including the complete loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

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