Roth IRA Management fees being paid out of Traditional IRA
Sorry if this topic has been answered before.
I am not concerned about the tax-deductability of an investment management fee on the tax return in this question.
Can someone please clarify if a taxpayers’ Roth IRA Management Fee (such as a 1% wrap fee) can be paid from that same taxpayers’ Traditional IRA, without them being required to deem that as a distribution?
How about paying a 401(k) management fee from a Traditional IRA?
How about paying a Variable Annuity management fee from a Traditional IRA?
Thanks
Permalink Submitted by Alan Spross on Fri, 2012-05-25 17:43
There may be cases where IRA custodians allow the practice, but such fees paid from a TIRA as a non reportable expense should only cover the fees required for that TIRA account or other TIRAs held by the same custodian.
Paying fees from a TIRA for a Roth IRA or NQ annuity should be reported as taxable distributions from the TIRA on a 1099R. Once reported as income, the money can be used to pay fees for other accounts.
Permalink Submitted by David Mitchell on Sat, 2012-05-26 04:41
Thanks very much!
Permalink Submitted by Matthew Clement on Thu, 2012-05-31 19:58
I’m aware that advisory fees on fee-only IRA accounts may be paid through a taxable fee-only account held at the same custodian.
As an example, if I’ve got $100,000 in a fee-only Traditional IRA and $100,000 in a fee-only taxable account, and I pay 1% annually in fees, I can pay $1,000 from each account or I can pay the full $2,000 from my taxable account.
My question: Even though the fees taken from the taxable account (those above 2% of AGI) are deductible, isn’t it nevertheless more favorable for me to pay the fees on the TIRA directly from the TIRA?
That amount is paid pre-tax, instead of after-tax, and therefore the net impact on the two portfolios (opportunity cost of the future growth of the fee) is less in the TIRA than within the taxable account… or so I thought. Recently someone whose opinion I respect reported that it’s always best to pay all the fees from the taxable account, and so I’m questioning my original assumptions.
Permalink Submitted by mk foss on Thu, 2012-05-31 21:54
I advise my clients to have fees taken out of the TIRA during the accumulation phase to better judge the performance of those managing the account. Once distributions begin after age 70.5, I usually reccomend paying them outside the IRA if they will be able to dedut them. Not everyone in that age bracket itemizes and if they do, the tax deduction may be enough to put them in AMT.
Permalink Submitted by Matthew Clement on Thu, 2012-05-31 22:06
Thank you. I’m wondering, however, about the mathematical accuracy of one recommendation over the other. Realizing that no answer is going to be correct 100% of the time, is there some way to judge which scenario is going to be most appropriate most of the time?