Real Estate in IRA account

Submitted by lynda johnson on Mon, 2019-01-07 23:55

My husband turned 70 in Oct. so will be required to take IRA distribution this year. His only IRA holdings is in Real Estate. Obviously, he doesn’t want to sell it but has anyone crossed this road on how to take a distribution from real estate?



Submitted by Alan - IRA critic on Tue, 2019-01-08 00:16

  • If one has real estate in their IRA, there should be enough traditional investments to fund RMDs before reaching age 70.5. Since 2019 will be his first RMD year, with that RMD not actually required to be distributed until 4/1/2020 he has time to determine if he can dispose of enough real estate to fund the RMD. Obviously, this depends on on how many properties are included. If it is just ONE property, this will be hard to do. While it might be possible to distribute PART OF a property to himself, this is problematic because he is co owner with his IRA and the risks of a prohibited transaction increase in that situation. For instance, the property tax bill would have to be pro rated between himself and his IRA, as well as other expenses such as insurance, maintenance etc. The combined complexity and risks of this are not desirable.  I assume that he has a self directed IRA custodian holding this IRA account, and they have run into this before, so he should ask their advice to what to do regarding this liquidity problem.
  • Note that the IRS is lenient on delinquent RMDs when made up and self reported by the IRA owner. Therefore, if he could not sell in the next 14 months, he could probably omit the RMD for awhile longer as long as he is trying to sell. Once sold he would have to make up the late RMDs and file form 5329 for each year requesting that the IRS waive the penalty for “reasonable cause”, that cause being his IRA was tied up in real estate that he could not sell in time to take his RMD(s). The IRS will probably waive the penalty in this situation.
  • Another situation associated with real estate is establishing a year end value of the property because this must be reported to him and the IRS on Form 5498 or a statement by the end of January for the prior 12/31. His IRA custodian may periodically require an appraisal (depending on the nature of the property) in order to meet this obligation.  That is another detail to check with the IRA custodian.


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