How to Calculate SIMPLE IRA Value

by Ben Taylor

The value of a Savings Incentive Match Plan for Employees individual retirement account, or SIMPLE IRA, is an estimate of its fair market value at the end of a calendar year. It is reported to the IRA's beneficiary and the Internal Revenue Service on box five of Form 5498. The form is only issued if the IRA's beneficiary or employer made a contribution to the account during the calendar year. Fair market value (FMV) is the value the SIMPLE IRA would likely command in a willing exchange between a buyer and seller. The year-end FMV of a SIMPLE IRA is used to calculate minimum distribution amounts, and is based on the total value of the IRA as of December 31 of the previous year.

Determine the period for which you will calculate the fair market value of the SIMPLE IRA. A calculation period can begin immediately before a contribution is made to an IRA, and must end immediately after contributions in excess of yearly limits have been returned. The year-end FMV calculates a SIMPLE IRA's value for an entire calendar year.

Total the amount of principal the beneficiary has contributed to the SIMPLE IRA for the calendar year, as well as any matching funds the employer has contributed. Since the IRS classifies contributions to a SIMPLE IRA as a voluntary salary reduction, employers generally match employee contributions, but cannot exceed three percent of the employee's total earnings -- or $11,500 -- as of 2011. An employee can set the amount he will contribute to the SIMPLE IRA as either a percentage of his salary or a fixed amount.

Total the value of rollovers involving the SIMPLE IRA. A rollover converts principal from a SIMPLE IRA into a traditional or Roth IRA and vice versa. Rollovers can be taxed or subject to fees. Employer contributions to a SIMPLE IRA cannot be rolled over into another IRA.

Figure the value of all contributions and conversions involving the SIMPLE IRA, then combine that sum with the IRA's existing principal. Subtract any planned distributions and resultant fees from the account's balance.

Use the account's balance at the end of the calendar year plus a projection of the SIMPLE IRA's future earnings to estimate its fair market value. Base the future earnings projections on realized capital gains, as well as planned short-term and long-term investments your SIMPLE IRA custodian will make. If the IRA's past performance indicates the fund could grow by 5 percent in the coming calendar year, its FMV should reflect that potential.

Tips

  • Use a computer spreadsheet to organize and record your figures while calculating the SIMPLE IRA's fair market value.
  • Projecting a SIMPLE IRA's future earnings is easier for established accounts because more-established accounts have more performance data to analyze.

Warning

  • Fair market value and earnings projections are both estimations. For a less speculative valuation of a SIMPLE IRA, base its value solely on the principal recorded at the end of the calendar year.

Items you will need

  • IRS Form 5498
  • IRS Form 1099-R
  • Computer spreadsheet

Resources

About the Author

Ben Taylor has been writing since 2005 and has had work published by WEKU-FM and West Virginia Public Broadcasting both on air and online. Taylor holds a Master of Arts in English from Eastern Kentucky University and currently teaches composition and ESL there.

Photo Credits

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