Required Minimum Distributions (RMDs) and Alternative Assets

What Self-Directed IRA Investors Need to Know

Required Minimum Distributions (RMDs) are a critical part of retirement planning, and they can become more complex when your Self-Directed IRA holds alternative assets rather than traditional stocks, bonds, or mutual funds. Real estate, private placements, promissory notes, precious metals, and other non-traditional investments don’t always lend themselves to easy liquidation, yet RMD rules still apply.

This educational overview explains how RMDs work, why alternative assets require extra planning, and what Self-Directed IRA investors should consider well before their first distribution year. ‍

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What Is an RMD?

An RMD is the minimum amount the Internal Revenue Service (IRS) requires you to withdraw each year from certain retirement accounts once you reach RMD age.

Key points to remember:

• RMDs generally apply to Traditional IRAs, SEP IRAs, SIMPLE IRAs, and pre-tax employer plans
• Roth IRAs are not subject to RMDs during the original owner’s lifetime
• The required amount is recalculated each year based on your account value and IRS life-expectancy tables

Failure to take an RMD, or taking too little, can result in significant IRS penalties. ‍

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Important RMD Flexibility for IRA Owners

If you own multiple pre-tax IRAs, the IRS allows you to aggregate your RMDs. This means:

• You calculate the total RMD required across all of your Traditional, SEP, and SIMPLE IRAs
• You may take the full RMD amount from any one IRA or a combination of IRAs

As a result, your RMD does not have to come from your Self-Directed IRA at Mountain West IRA. Many investors choose to satisfy their RMD from a traditional bank or brokerage IRA holding liquid assets if that is simpler, allowing alternative assets inside a Self-Directed IRA to remain invested. ‍

Employer plans (such as 401(k)s) follow different rules and generally must satisfy RMDs separately.

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‍Why RMDs Are More Complicated with Alternative Assets

With a Self-Directed IRA invested in alternative assets, RMD planning often requires advance coordination and strategy.

Unlike publicly traded securities:

• Alternative assets are sometimes illiquid
• Values may not update daily
• Selling an asset solely to meet an RMD may not align with your investment timeline

Because of this, Self-Directed IRA holders should think about RMDs years in advance, not just when distributions begin. ‍

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Common Alternative Assets and RMD Considerations

Real Estate

Real estate held inside an IRA is a physical asset. If the RMD amount is smaller than the property’s total value, investors may choose to:

• Take an in-kind distribution of a fractional interest (partial in-kind distribution)
• Use available cash in the IRA
• Sell the property, if appropriate

Accurate valuations are especially important for real estate RMD calculations.

Private Placements and Syndications

Private investments may not offer liquidity on demand. Investors should:

• Review operating agreements for distribution flexibility
• Understand redemption limitations
• Coordinate valuation timing with administrators and sponsors

Promissory Notes

Notes may generate income, but principal is often locked in. If note payments don’t cover the RMD:

• Additional cash may be required, or
• An in-kind distribution of the note, or a portion of it, may be considered

Precious Metals

IRS-approved precious metals held at a qualified depository can be:

• Liquidated for cash, or
• Distributed in-kind, with the metals shipped to you personally and taxed based on fair market value

Storage, shipping, and valuation timing all matter when metals are used to satisfy an RMD.

Cash Management Matters

One of the most effective ways to prepare for RMDs in a Self-Directed IRA is maintaining sufficient cash reserves. Even modest liquidity can:

• Prevent forced asset sales
• Simplify annual RMD processing
• Reduce administrative complexity

Many experienced investors intentionally keep a portion of their IRA uninvested for this reason, while also planning to take RMDs from other pre-tax IRAs when possible. ‍

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In-Kind Distributions as an RMD Strategy

An in-kind distribution allows you to distribute the asset itself rather than selling it. This can apply to real estate interests, notes, private equity, and precious metals.

The distributed asset is taxed at its fair market value as of the distribution date, and once distributed, it becomes personally owned rather than held inside the IRA.

In-kind distributions require accurate valuations, proper documentation, and advance coordination with your Self-Directed IRA administrator. ‍

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Planning Ahead Is Essential

RMD challenges are rarely solved at the last minute. Smart planning may include:

• Reviewing asset liquidity well before RMD age
• Understanding which IRA accounts, you may use to satisfy your total RMD
• Discussing long-term exit strategies for illiquid assets
• Considering Roth conversions prior to RMD age, when appropriate
• Coordinating annually with your CPA or financial advisor

Final Thoughts from Mountain West IRA

Self-Directed IRAs give investors access to a broader range of opportunities, but Required Minimum Distributions (RMDs) still apply to pre-tax IRAs, even when those retirement accounts hold alternative assets.

Before making decisions related to RMDs, distributions, or alternative assets, always consult your CPA, financial advisor, or tax professional to confirm the strategy aligns with your overall retirement plan.

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Ready to take control of your retirement strategy? 

At Mountain West IRA, we specialize in Self-Directed IRAs that give you the power to invest beyond the stock market, into real estate, private loans, precious metals, cryptocurrency and more. Whether you're considering a pre-tax or post-tax IRA, we can help you understand your options and answer any questions you may have. 

📞 Call us at 866-377-3311 or 

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