Advisor Fee and 10% penalty
If an advisor is paid a fee out of a wrap account, there is no tax do on that nor a 10% penalty prior to age 59.5. Many clients may only have a large IRA and still need serious advice. What if an advisor is fee only? Is the money taken directly out of an IRA taxable? What about a 10% penalty prior to 59.5? I think this is a double standard otherwise, but I only care what the IRS would say to a client during an audit.
Permalink Submitted by Alan - IRA critic on Mon, 2014-03-24 18:04
Payment of a financial advisory fee directly from an IRA is not reported as a distribution and therefore not taxable or subject to penalty. Unless the IRA is a Roth IRA this means the fees are paid from pre tax money. For a Roth IRA, a client is better off paying the fee with outside funds although the misc deduction would be improper if the Roth is qualified because it will never produce taxable income.