Deductible Investment Expenses
The IRS publications seem very vague on what qualifies as a deductible investment expense. Are fees paid out of investment accounts deductible? Specifically, are annual fees paid from investment accounts deductible? Annual fees for variable annuities? Income rider fees on annuities? Fees paid out of fee-based investment accounts (wrap fees)?
I thought I had heard that fees paid out of an IRA are not deductible, but I can’t find anything that says one way or the other.
Thanks!
Permalink Submitted by Alan - IRA critic on Sun, 2013-03-10 03:44
Fees paid directly from an IRA are not deductible, as they are paid from tax deferred funds. However, administrative fees and investment advisory fees for IRA assets are deductible when paid from outside funds, although the misc deduction has a 2% of AGI floor and are also not deductible under AMT. In PLRS 2005 07021 and 2011 04061 the IRS found that wrap fees paid directly from an IRA while not deductible, do not constitute a contribution to the IRA. It was assumed that such wrap fees paid with outside funds were deductible. This is significant because wrap fees include commissions and possibly other services that formerly had to be paid from outside funds increase the range of deductible expenses. If given the choice, it is usually better to pay TIRA fees out of the IRA (pre tax) and Roth fees from outside funds, particularly if you can itemize them.
Permalink Submitted by Jeff Beebe on Sun, 2013-03-10 20:52
Thank you for this, and for the references. To clarify, are fees paid directly from an NQ account, like a Trust account, deductible as investment expenses because the account is not a tax-deferred account (not pre-tax money)?
Permalink Submitted by Alan - IRA critic on Mon, 2013-03-11 00:46
Yes.