End of Year IRA and Retirement Planning

SDIRA and Retirement Planning
Estimated reading time: 3 minutes(Last Updated On: February 16, 2022)

The year 2021 brought its ups and it’s downs, but no matter how the past year has left you feeling, it’s time to prepare for the upcoming year ahead. Part of getting ready for the New Year, though, means tying up all the ends from the past year… especially with your Self-Directed IRA and other retirement accounts. We’ve listed some of the most common end of year financial questions from SDIRA holders.


What is a Fair Market Valuation and do I need to submit one?

Fair market valuations (FMVs) are values required by the IRS for the worth of assets in your retirement account.  FMVs are required to be reported to the IRS by the Custodians each year, making it very important to submit this information. Custodians will require this end-of-year estimate for each individual asset in the IRA, so if you hold an investment in your IRA, you will need to complete a Fair Market Valuation. FMVs typically require supporting documentation, as well. Read on our website for further information about FMVs.


Are RMD’s due for 2021?

Yes, for 2021, you must take your RMD if you are age 72 by December 31, 2021. The RMD suspension was only for RMDs due in or for 2020. If you have additional questions regarding RMDs, please contact your financial advisor or visit the IRS website.


How does the SECURE Affect RMDs?

The SECURE Act did bring some changes to RMD rules. If you reach 70 ½ in 2020 you must take your first RMD by April 1st of the year after you reach 72. If you fail to take your required minimum distribution, you will get hit with a 50% excise tax on any RMD that you do not remove.


Will I owe tax if I took a COVID-related distribution? Can I repay my coronavirus-related distribution to my retirement account?

Starting with the year when the distribution was received, these distributions are included in income in three equal portions over a three-year period. For example, if you received a

$3,000 distribution in 2020, you would report and pay income tax on $1,000 in tax years 2020, 2021 and 2022. You can repay any portion up to the full amount of the distribution if deposited into a retirement plan or IRA within three years of the date the distribution was received. Repaid distributions are not subject to federal income tax. Taxpayers can also receive a refund of tax that is already paid, meaning if you repay the full amount of your coronavirus-related distribution in 2022, you won’t have to include any of the distribution in your income for 2022. Simply file amended federal income tax returns for 2020 and 2021, and this allows you to claim a refund of the tax paid on the amounts you included as taxable income for those years.


What happens if I made an excess IRA contribution this year?

You may withdraw excess contributions from your account by the due date of your tax return (including extensions) if you exceed the 2021 IRA contribution limit. If the excess contribution is left in the account, you will have to pay a 6% tax each year excess amount is left in your account.


Planning for the end of the year doesn’t have to be stressful, and our Quest representatives are here to help you move into 2022. If you have more questions about your SDIRA and what the close of 2021 means for your retirement accounts, our specialists are here to help. Schedule a free call today!

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