Can I deduct advisory fee paid within an IRA on my tax return?
I am retired and have a sizable IRA account. I have been drawing down my IRA for living expenses. Every year, I paid a substantial amount in advisory fee which is automatically deducted from within the IRA.
I have read all the comments in the Discussion Forum and found conflicting answers on the deductibility of advisory fees on the subject. Specifically, Mr. Alan Oniras’ (Friday 2011-08-05 18.47) response seems to support the idea of claiming the advisory fee as a misc. itemized deduction. But he did not specify if the wrap fee is tax deductible when it is paid from within the IRA. It is clear that advisory fee is tax deductible if paid outside of the IRA. But I am specifically interested in whether I can claim the advisory fee paid out of an IRA as a misc. deduction on my income tax return. I am about to file my 2012 tax return soon. I know there is no official IRS ruling on this. I am inclined to claim it as a misc. deduction now; because if I don’t do it, I’ll lose it. What rulings can I cite in the event that I am audited?
Steve
Permalink Submitted by Alan - IRA critic on Fri, 2013-03-22 16:43
None of the fees that would be deductible if paid from outside funds are deductible if deducted directly from the IRA accounts. However, keep in mind that when such fees are paid from the IRA, for a traditional IRA at least you have not paid taxes on that balance. So when a fee is paid out of the TIRA, it is effectively tax free since it is being paid from pre tax monies. A deduction for that would therefore be double dipping. In many cases therefore you are better off having these fees paid directly from the IRA. Of course, fees for a Roth IRA are a different matter because direct payment is from Roth funds that will not be taxed. Therefore, if you have a Roth IRA, and can deduct the fees (2% floor on misc deduction and must be otherwise able to itemize) on Sch A, you would want ot see if you could have those fees billed to you and pay them from other funds.