Advisory Fee Refund
My question has to do with Investment Advisory fees.
I understand there is a provision in the tax code that allows advisory fees pertaining to an IRA are OK to be withdrawn from an IRA without the withdrawal being deemed a taxable distribution.
Is there a tax provision or guidance from the IRS that any fee REFUND pertaining to an IRA needs to be put back into the IRA so it is not deemed to be a taxable distribution? Rather than just cutting a check to the client for the refund, which in my mind could be considered to be a taxable distribution?
Permalink Submitted by Alan - IRA critic on Fri, 2019-05-17 20:26
Am not aware of any specific guidance on fee refund handling from the IRS, but your analysis is correct that any refund of fees deducted directly from an IRA should be returned to the IRA to prevent a taxable distribution that the IRA custodian would not be aware of. It is also important that the advisor apportions fees accurately so that only fees for a TIRA are deducted from the TIRA, with separate treatment of Roth IRAs etc. In some cases it should be OK to offset current year fees for an IRA by a refund of prior year fees as that would eliminate additional IRA transactions. Advisory fee billing cycles from advisor to advisor are likely to vary considerably.