New 5498 Reporting: What does it mean for my IRA’s private loans?

Patricia McCrystal

August 25 2015

IRA holders are facing a new change in asset reporting for the 2015 tax year. IRS form 5498, which IRA providers use to report the value of your account, includes new Boxes 15a and 15b, which require IRA administrators to categorize the values of the assets within their clients’ IRA accounts. This includes a category that delineates the value of private loans extended with IRA account funds (15b).

Prior to the 2014 tax year, Box 15 didn’t exist, and IRA account holders only had to report the overall value of their IRA or qualified retirement plan. Box 15 appeared on IRS form 5498 in 2014, but reporting within the box was optional. For the 2015 tax year, the IRS is actively taking steps to enforce requirements for hard-to-value IRA assets. This means the IRS will have a more differentiated system for identifying which IRA accounts possess hard-to-value assets; not to mention a heightened ability to target certain investment structures in which prohibited transactions can often occur, such as Checkbook Control IRAs/ Individual LLCs.

Code B of Box 15b. requires the reporting of “Short or long-term debt obligation that is not traded on an established securities market”. This is essentially asking for a valuation of all notes and private loans within your IRA. Every asset in your IRA has a generally accepted process for valuation; original, purchased, and secondary market notes included.. The value of a private loan is determined by more than just the amount of money lent – there are three factors which contribute to the valuing a private loan in an IRA: 1. Original loan amount, 2. Interest rate, and 3. Length of term.

Theoretically, the value of a note fluctuates everyday due to inflation and the risk associated with the loan’s repayment. A private loan’s value is also dependent on the lender’s risk tolerance, as defined within the loan’s agreed-upon interest rate and maturity date.

The creation of Box 15 may mean the chances of your IRA getting audited by the IRS could increase. IRA account holders will have to be more meticulous than ever in their IRA transaction proceedings. So what can you do to make sure you and your IRA account are ready for IRS scrutiny should they choose to audit your account?

It requires a joint effort between the IRA account holder and the IRA administrator to keep account proceedings within the bounds of IRS rules and regulations. IRA administrators that provide educational services to their clients make it easier for account holders to exercise due diligence when making investment decisions. Choose a credible IRA administrator with a reliable track record and an educational business model to confidently make knowledgeable decisions about your IRA account proceedings. To learn more about self-directed IRAs, feel free to visit New Direction IRA’s website at www.ndira.com for educational videos, webinars, and more.

Gold and Silver with an IRA Custodian vs. IRA LLC Home Storage

What’s the Real Difference?

Patricia McCrystal
Louisville, CO, August 10th 2015 – Here at New Direction IRA, we make it a priority to empower our clients with unbiased information about their investment choices so they can make knowledgeable investment decisions. If you have a self-directed IRA account with New Direction IRA, you’re more than likely already aware of your ability to invest in gold, silver, and other precious metals with your IRA funds. However, as more companies promote the idea of storing gold and silver at home with an IRA LLC (or in a local safe deposit box), we’d like to highlight the differences between storing precious metals at a depository via an IRA provider, and storing precious metals at home with an IRA LLC. 

Companies that endorse the idea of home storage don’t always paint the whole picture regarding benefits, risks, and rules of at-home storage vs. utilizing a depository that specializes in precious metals storage through the IRA administrator. These companies usually refer you to your own legal counsel for advice on the process.

You can rely on New Direction to communicate the relatively unknown details about at-home metals storage that you need to make a fully informed decision about your precious metals IRA.

IRA/LLC program:
•  The IRS is notified annually that your IRA owns the LLC.
•  Metals investment choices are severely limited.  No metals other than US minted Eagles
•  The IRA owner must supply the IRA provider with third party confirmation of the value of the LLC including any metals and any cash it owns.
•  Insurance for home stored metals is unattainable at any reasonable price.
•  Safe Deposit box storage is not insured by the bank and although insurance is available from select vendors, it is expensive. (ex: $100K  = $200/yr  $50K = $110, $20K = $75)
•  The metals still belong to the IRA, not to you, so you must avoid any prohibited transactions with them otherwise your IRA is at risk. An example of this would be pledging the metals for a personal loan or taking personal ownership of the metals directly.
•  Distributions of metals or other assets owned by the LLC must go first to the IRA provider to be reported to the IRS.
•  Providing storage space for the LLC assets at your personal residence, in your personal safe, in your personal back yard, may be a prohibited transaction.
•  The LLC must have a business bank account which may have monthly fees.
•  Bank safe deposit boxes cost between $15 to $65 per year or more.  Keep in mind that silver eagles take much more space per $.
•  IRA provider annual fees for LLCs are often higher than for direct metals ownership.
•  Bookkeeping for the LLC must be maintained by the IRA owner.
•  Annual reporting and state filing fees may be required for the LLC.
•  LLC set up and legal fees are required.
•  If the IRS asserts that a prohibited transaction occurred, the burden of proof is on the taxpayer to ensure that the IRA holder did not receive a personal benefit.  In tax court you are presumed guilty until you prove otherwise.
•  Personally-held metals are likely subject to a higher level of due diligence from buyers as there is no documentation of “chain of possession” ensuring that the metals have not been tampered with and may reduce the resale value of some metals.

IRA Direct Ownership:
•  The IRA provider does not alert the IRS that your IRA owns metals.
•  You may invest in any allowed metals.
•  You pick from a selection of depository companies specializing in holding metals.
•  You may take distribution of or sell the metals at any time.
•  You do not need to supply the IRA provider annual confirmation of the value as this is done automatically by the IRA provider.
•  Insurance is included in the depository fee for any metals stored.
•  There is practically no possibility of you having a prohibited transaction. 
•  Banking accounts and bookkeeping is included in IRA provider fees.
•  IRA providers often have lower annual IRA fees for metals than any other asset.
•  Depositories offer either specific item storage or commingled storage at your option.
•  There is no state reporting required by you.
•  No LLC creation fees or legal fee is needed.
•  IRA can be established and ready to make a purchase significantly faster.

Although the idea of having your IRA’s precious metal sitting on your kitchen table may sound appealing, most of our clients realize that holding their IRA’s metals with a professional administrator is the option with lower stress, lower hassle, and lower risks.
For many investment strategies, there are multiple factors in play when making the best choice. Education about IRS rules and regulations is critical to making knowledgeable IRA investment decisions.

For New Direction account holders, our numerous educational programs and materials provide the best information in the industry. Use this chart as a quick reference guide to compare the risks, costs, and responsibilities of direct IRA ownership verses IRA LLC home storage of your precious metals assets. For more information on New Direction's Precious Metals IRA and IRA/LLC options, please visit our gold IRA website, and as always, happy investing!