Deductibility of Investment Sales Charges in an IRA
Please help . . .
I have a couple of clients who had a SEP at Morgan Stanley invested in MS Funds (Bshares) and out of surrender. We don’t accept MS Funds here, so we had the funds liquidated and rolled over to an IRA here.
Upon receipt of the funds, we placed all of the funds into a Balanced strategy mutual fund (A shares, as they hit a breakpoint bringing the fee to 4.75%). We discussed at length, that this was a long-term plan, the different classes of shares, etc. This all happened at the beginning part of June ’08.
In Feb ’09 they wanted out and nothing I could say would stop them, they sold all of it. They wanted to know that there was some benefit to working with us, etc. I told them (with the non-tax advice caveat) that they would have to check with their CPA but I was pretty sure the account fees (termination, account maint) was deductible, and wasn’t sure about the sales charges?
They recently finished their taxes where their CPA told them that they were ripped off with fees, they wouldn’t be able to deduct anything, and essentially, this was a bad idea as a whole.
I realize hindsight is 20/20, but would like some advice on protection for myself, and things that I can present to help appease the clients, who have since put most of their money into a speculative solo stock purchase they heard about.
Thank you!
Karey
Permalink Submitted by mk foss on Fri, 2009-05-01 22:56
There have been some old revenue rulings and private letter rulings regarding these charges.
Basically, an annual fee if paid by the taxpayer with outside funds is deductible as a miscellaneous deduction subject to the 2% limitation. Commissions or sales fees are not deductible even if paid from outside funds. Fees paid with a wrap account are deductible again if paid from outside funds.
No deduction is available for anything taken directly from the IRA. I’m not sure about the termination fees but they sound like something that would be deducted from the account and thus would not be deductible.