Do Management Fee withdrawal satisfy RMD?
If a client is paying his account management fees directly out of the fund of his IRA to the account of the
Adviser, do those withdrawals qualify as part of his RMD? Must the funds go to the account holder, or can
they be sent to someone else. Is it enough to just withdraw the money from the account?
Permalink Submitted by Alan Spross on Wed, 2011-02-09 23:07
The advisor fees can be drafted directly out of the account and are not reported as distributions, therefore they cannot be credited toward your RMD.
If you want to preserve your IRA assets, you could take your RMD distribution and then use some of those distributed funds to pay the advisor. In that case you are paying from funds that are now outside the IRA and therefore you might qualify for a misc itemized deduction subject to 2% AGI floor for the fee payments, and you have reduced the total distributions taken from the IRA.
Note that from a tax standpoint, paying directly from the account with a TIRA makes more sense that with a Roth IRA, because the fees deducted directly from the IRA come out tax free. But your Roth already is tax free and will not have RMDs so paying with outside funds makes more sense with a Roth IRA than with a traditional IRA.
Permalink Submitted by Dave Petersen on Tue, 2012-03-20 15:11
Would it be advisable for clients taking their RMD’s to withdraw their management fee in addition, so that it could potentially lower the IRA’s value in the future and therefore, lower the RMD going forward? Or, would it make better sense to take the RMD only and pay the fee with taxable dollars so that one could leave the remainder (the fee in this case) to grow tax deferred?
I know this is an individualized issue, but is there anyone w/ general advice. Thank you.
Permalink Submitted by Alan Spross on Tue, 2012-03-20 17:52
For people with a large IRA and who cannot fully itemize the fee on Sch A, it is better to have the fee deducted directly since it will be paid with pre tax dollars, and marginally reduce future taxable RMDs.
Many people who can otherwise itemize deductions still do not get the advantage of the deductible fees because of the 2% AGI floor OR the AMT elimination of misc deductions. But for those who can itemize the fees and want to preserve their IRA assets, they should pay the fee from their taxable account.