Permalink Submitted by Alan Spross on Mon, 2008-01-14 20:35
IRS letter ruling 2005 07021 ruled that investment management fees that are part of a “wrap account” fee and paid with funds outside the IRA do not constitute a contribution to the IRA and are deductible. The deduction would be a miscellaneous itemized deduction on Sch A and subject to the 2% of AGI limit.
If your fee is NOT part of a wrap account, then you have no ruling to back up your deduction. While the rationale used in the ruling might well include management fees based on a % of IRA account assets, taking the deduction would be very aggressive and prone to challenge because you would be venturing well beyond the actual PLR findings. Best bet is to have the fees structured as a wrap account.
Permalink Submitted by Alan Spross on Tue, 2008-01-15 19:06
To add to my prior post regarding deduction of investment management fees for IRAs:
Pub 529 clearly indicates that these fees are deductible when used for accounts that produce taxable income. Traditional IRA accounts only produce taxable income on a deferred basis when distributions are taken, or for Roth IRA accounts, possibly never. There has not been much definition regarding several possible variations here, such as taking the deduction in years when IRA RMDs or other taxable distributions actually do produce taxable income.
Because of these issues, it is recommended to have investment fees broken out between tax deferred accounts and taxable accounts for which the deduction is clearly allowable, if a Wrap account does not exist. A Wrap account includes administrative, management, and commissions under one charge based on percentage of assets and is payable regardless of activity in the account.
Permalink Submitted by Alan Spross on Mon, 2008-01-14 20:35
IRS letter ruling 2005 07021 ruled that investment management fees that are part of a “wrap account” fee and paid with funds outside the IRA do not constitute a contribution to the IRA and are deductible. The deduction would be a miscellaneous itemized deduction on Sch A and subject to the 2% of AGI limit.
If your fee is NOT part of a wrap account, then you have no ruling to back up your deduction. While the rationale used in the ruling might well include management fees based on a % of IRA account assets, taking the deduction would be very aggressive and prone to challenge because you would be venturing well beyond the actual PLR findings. Best bet is to have the fees structured as a wrap account.
Permalink Submitted by Alan Spross on Tue, 2008-01-15 19:06
To add to my prior post regarding deduction of investment management fees for IRAs:
Pub 529 clearly indicates that these fees are deductible when used for accounts that produce taxable income. Traditional IRA accounts only produce taxable income on a deferred basis when distributions are taken, or for Roth IRA accounts, possibly never. There has not been much definition regarding several possible variations here, such as taking the deduction in years when IRA RMDs or other taxable distributions actually do produce taxable income.
Because of these issues, it is recommended to have investment fees broken out between tax deferred accounts and taxable accounts for which the deduction is clearly allowable, if a Wrap account does not exist. A Wrap account includes administrative, management, and commissions under one charge based on percentage of assets and is payable regardless of activity in the account.