Key takeaways
- Public securities price themselves; the private assets in a self-directed account do not, and the annual value is not optional.
- Different private assets are valued differently, and the account holder has a real role in obtaining the number.
- The habit that keeps you clean is requesting the valuation before it is due rather than after.
Every IRA custodian must report the account’s fair market value to the IRS each year on Form 5498. For an account holding index funds, that’s automatic. For one holding a rental property, a private fund interest, or a promissory note, someone has to establish what those assets are worth — and that someone starts with you.
Why the number matters more than it looks
The reported FMV isn’t trivia. It drives required minimum distributions, which are calculated from the prior year-end value. It sets the taxable amount of a Roth conversion or an in-kind distribution. It matters in beneficiary administration and in any IRS examination of the account. An indefensibly stale or convenient number can turn into real tax consequences.
How private assets get valued
The method follows the asset. Real estate typically relies on an appraisal or a supportable market analysis. Private fund interests use the sponsor’s or administrator’s statements. Promissory notes are generally carried at outstanding principal unless impairment says otherwise. Closely held business interests are the hardest — and the place where an independent, qualified valuation earns its fee, especially for conversions, distributions, and estate events.
The owner’s role, plainly
As a directed custodian, we report values; we don’t generate them for private assets. Account owners are responsible for obtaining and submitting current valuations from an appropriate source — the sponsor, an appraiser, a valuation professional — usually as part of a year-end process. “Whatever I paid for it” stops being a defensible answer the moment conditions change.
Habits that keep you clean
Calendar the valuation cycle so year-end doesn’t surprise you. Keep the supporting documents — appraisals, sponsor statements, payoff schedules — with your records, not just ours. Revalue when something material happens, not only when a form asks. And before any conversion or distribution of a hard-to-value asset, get the valuation first. The tax math is only as good as the number underneath it.
Educational only. This page is general information, not individualized investment, legal, or tax advice. Rules depend on your account type, transaction, tax year, and circumstances — consult a qualified professional.