Do These 2 Things Before Filing Taxes If You Have A Self-Directed Retirement Account

Tax time is here, and the April 15 deadline will arrive soon. Here's what you need to do to be prepared.

If paying thousands in taxes to the IRS sounds about as much fun as re-watching that last Super Bowl, then don’t forget that there’s still plenty of time to lower your tax burden for 2018. And while you're lowering your taxes, you’ll also want to remember to report the Fair Market Value of their alternative investments to the IRS that you hold in your Self DIrected account – but don’t worry, we can help with that.

Contribute to your IRA help alleviate “sticker shock” at tax time

Rocket Dollar account holders who opened Self-Directed Solo 401(k)s or Self-Directed IRAs in 2018 still can contribute to their retirement accounts and enjoy a significant reduction of taxes owed to the IRS when they file their 2018 returns. A longtime rule was that you should expect to pay what you paid the prior year, but making additional contributions to your IRA can significantly lower the total amount owed to the IRS.

It’s important to know contribution limits for the year since contributions vary depending upon the type of retirement account you have. Contributions to Self-Directed IRAs can be made all the way through April 15. The only caveat is that the plan must have been established prior to or on December 31, 2018.

Making additional contributions to your Rocket Dollar IRA can significantly change the amount owed to the IRS – and due to changes in the tax code enacted in 2017, many people are finding that they have to cut checks to the IRS this year or that their returns have shrunk. According to the IRS, the average return so far is down nearly 8.5 percent.

Don’t forget that there also can be penalties and interest owed for underpayment of your 2018 tax burden if you failed to withhold enough during the year. The IRS says taxpayers must pay roughly 90 percent of their tax burden during the year to avoid an estimated tax penalty.

Reporting Fair Market Value of alternative assets

Rocket Dollar retirement investors must complete an additional step when preparing their 2018 returns by reporting the Fair Market Value of all assets in their retirement portfolios to Rocket Dollar, the custodian of your IRA.

Reporting FMV is easy with traditional investments in public stocks, bonds and the like since their values are known at the end of every trading day. However, determining Fair Market Value for alternative investments can be trickier since these numbers typically aren’t reported very often.

For investments in real estate, values can be determined when you buy, sell or refinance. Cryptocurrencies and personal loans also have known values. Startup equity is a little trickier since startups often get valued infrequently.

Rocket Dollar makes it easy to determine FMV through the investment tracker found in your client dashboard. We’ll also be sending correspondence to our customers to encourage them to begin the process of reporting accurate valuations for their investment holdings since we are certified to assess Fair Market Value on alternative investments.

The Fair Market Value of assets in your retirement portfolios must be updated and reported annually so Rocket Dollar can pass that information along to the IRS, which wants to understand how accounts are moving so that when you reach age 70 it knows how much you are required to take in distributions and how much tax to assess.

Annual reporting is part of being a successful Self-Directed account holder

Using a Rocket Dollar retirement account for alternative investments is a tool to fight against taxation since contributions to your account directly reduce your tax burden and exposure to taxation. Reporting the value of assets in your portfolio and total dollar contributions follow the same annual cycle as all other tax work and is an important part of your overall financial health.

Similarly, it’s also a crucial aspect of successfully managing a Self-Directed retirement account. Retirement investors can simply email support@rocketdollar.com and our team of experts can guide you through the reporting process.