As summer turns to fall, it’s not too early to think about planning for year-end transactions with your self-directed IRA (SDIRA). The nature of many alternative assets—unlike publicly traded securities or time deposits—means that they may take longer to value or liquidate. Preparing now will help you avoid year-end delays and compliance problems. Here are some of the details that you may want to consider.
Submit RMD Requests Early
Late-year distribution requests are one of the most common sources of year-end delays. If you're required to take a required minimum distribution (RMD) this year, don't wait until the last minute to request it. Submitting your RMD request earlier gives Mainstar time to process the distribution correctly, especially if the distribution involves liquidating an asset, obtaining a current valuation, or coordinating with an investment sponsor to release funds.
If your SDIRA holds real estate, private equity, or another illiquid asset, the paperwork and coordination involved in a distribution can take weeks. Starting early helps you avoid a missed RMD deadline and the excise tax that comes with it. For “in-kind” distributions, Mainstar Trust requires withdrawal requests by the end of October. This allows for enough time to re-register assets by the end of the year.
RMD Reminder: Traditional IRA owners must take an RMD starting in the year they reach age 73. The first year’s RMD must be taken by April 1 of the following year; after that, the deadline is December 31 of each year. IRA custodians are required to send an annual RMD notice to all affected individuals.
Confirm that Your Annual Valuation Is Complete
Every IRA custodian is required to report to the IRS the fair market value (FMV) of each account annually, and that figure depends on accurate, timely valuations of the underlying assets. If your account holds certain alternative assets, such as real estate, private placements, or LLC interests, check with your investment sponsor to confirm that this annual valuation is on track to be submitted to your IRA custodian.
For accounts holding real estate, Mainstar requires an independent appraisal every three years once the account owner has reached RMD age. If you're due for one of these appraisal cycles, schedule it now rather than in the final weeks of the year, since qualified appraisers can be booked out during the year-end rush.
Accurate valuations are required every year, but they matter even more in a year when you take a distribution of hard-to-value assets. An in-kind distribution of real estate or another illiquid asset must generate an accurate, defensible FMV report that reflects the asset value at the time of the transaction. An outdated or incomplete valuation can create ongoing problems for your account, so this is one area worth double-checking before year end, not after.
Consider Whether a Roth Conversion Makes Sense
Year end is also a natural time to think about whether converting some or all of a Traditional IRA to a Roth IRA fits well with your broader plan. A conversion means paying income tax now on the converted amount in exchange for tax-free growth and withdrawals later. This decision depends on factors like your current tax bracket, expected future tax rates, and how a conversion might affect other income-based calculations for the year.
If you're holding hard-to-value or illiquid assets in your Traditional IRA, a conversion adds another layer of complexity, since the converted amount is based on the asset's fair market value at the time of conversion. Seek sound advice before year end if this is something you're weighing, since the distribution for a 2026 conversion must be made by December 31 of this year.
A Few Other Year-End Items Worth Reviewing
- Contribution timing – IRA contributions for the current tax year can be made until your tax filing deadline next spring. But if you already know that you are eligible to contribute (and possibly deduct your Traditional IRA contribution), why wait? Consider adding money to your IRA earlier this year to get a jump on more retirement savings.
- Beneficiary designations – A quick review of beneficiary information, especially after a marriage, divorce, birth, or death in the family, helps confirm that your account will be distributed the way you intend.
- Asset-specific deadlines – Some investment sponsors have their own year-end cutoffs for such things as capital calls, distributions, or reporting. Check with each sponsor directly rather than assuming that a single deadline applies to all assets in your account.
Year-end planning for an SDIRA may require more lead time than a typical account, but a bit of preparation now can prevent a scramble in December. If you have questions about the year-end process or timing requirements, don’t hesitate to reach out to us. Working together will help us keep your SDIRAs a productive part of your retirement savings strategy.