At American Estate & Trust (AET), we understand that investments may not always yield the expected outcomes. In some cases, assets held in a Self-Directed IRA (SDIRA) can lose their value entirely. When this happens, it’s important to officially remove these worthless assets to maintain accurate account records and ensure compliance with tax regulations.
What Is a Worthless Asset?
A worthless asset is one that has lost all financial value or has a very low chance of recouping the initial investment. Examples include:
- A company filing for bankruptcy or being dissolved.
- A court order ceasing business operations.
- An investment deemed non-viable by a regulatory body.
When an asset is determined to be worthless, AET can either update the value in our system to $0 or help facilitate its removal from your account.
This guide provides step-by-step instructions on how to request the removal of worthless assets for different investment types allowed at AET.
General Instructions
For all asset types, you will need to:
- Gather Required Documentation: Provide evidence to support the asset’s worthless status. See specific requirements for each asset type below.
- Submit Documentation: Upload your supporting documents through your online portal under the asset management section.
- Certify Accuracy: Confirm that the information submitted is accurate to the best of your knowledge.
Please note: Documentation demonstrating an asset’s lack of value helps ensure compliance with tax guidelines and supports proper account management.
Asset-Specific Instructions
Wholly Owned LLCs
To remove a worthless wholly owned LLC from your SDIRA, please:
- Return all outstanding funds to the IRA from the LLC checking account.
- Provide the following documentation:
- LLC Dissolution document
- A closing bank statement showing the final distribution
- A final valuation showing that the LLC holds no remaining value
Private Loans
To remove a worthless private loan asset:
- Provide supporting documentation proving the asset's $0 value, such as:
- Bankruptcy discharge documents for the borrower
- A record of failed collection attempts
- A formal valuation document from a qualified third-party professional indicating that the asset has a zero or negligible value
- Submit a valuation report certifying the loan has no remaining value.
Real Estate
To remove a worthless real estate asset:
- Provide supporting documentation proving the asset's $0 value, such as:
- Recorded deed in lieu of foreclosure
- Recorded Trustee’s deed
- Recorded county tax deed showing the property sold for outstanding taxes
- Submit a valuation report certifying that the property has no remaining value.
Private Placement Memorandums (PPMs)
To remove a worthless PPM investment:
- Provide supporting documentation proving the asset's $0 value, such as:
- Final K-1 from the company
- Statement from an investment partner stating a $0 value, notarized on company letterhead
- A formal valuation document from a qualified third-party professional indicating that the asset has a zero or negligible value
- Submit a valuation report or other supporting evidence certifying the investment’s worthless status.
Tax Liens
To remove a worthless tax lien:
- Provide supporting documentation proving the asset's $0 value, such as:
- Proof that the tax lien has expired
- Property owner bankruptcy discharge documents
- Sale or foreclosure records showing the property changed ownership
- A formal valuation document from a qualified third-party professional indicating that the asset has a zero or negligible value
- Submit a valuation report certifying the tax lien’s zero value.
What If You Can't Provide Documentation?
If you’re unable to obtain official documentation proving an asset is worthless, AET may not be able to update the asset’s value to $0. However, there are independent valuation services that can help you formally assess the value of alternative assets. Depending on your circumstances, using these services may be beneficial.
Key Benefits of Removing Worthless Assets
Even if you believe an investment is beyond recovery, there are good reasons to formally address its value:
- Accurate IRS Reporting: AET reports the value of your SDIRA to the IRS annually. Incorrect valuations may affect your RMD calculations.
- Account Management: Properly updating asset values ensures that your account reflects its true financial position.
Final Steps
Once all required documentation has been submitted through your online portal and certified for accuracy, AET’s team will review the information. Upon verification, your account will be updated to reflect the removal of the worthless asset within 3-5 business days.
If you have questions or need assistance, please contact our Support team. We are here to help you manage your SDIRA investments with confidence.
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