Management Fees from IRA which includes after-tax contributions
I am curious if anybody can provide guidance as to how the deduction of management fees (or market declines for that matter) affects the mix of after-tax to pre-tax money from an IRA.
Say for instance, let’s say you have a $10,000 that consists of $4,000 of after-tax contributions. If you pay management fees from that account and that is the only outflow, what happens if say 2-10 years down the road the account balance is $4,000? Is all $4,000 after-tax money now? Is pre-tax money lost first or is it a pro-rata draw down?
Thanks!
Permalink Submitted by Alan - IRA critic on Fri, 2014-07-18 22:56
Management fees are deducted directly from the account, they are not taxable distributions and there is no 1099R issued. That means in your example, they would come solely from pre tax dollars because there is no reported distribution and therefore no Form 8606 that would apply any of the basis to these payments. Same scenario for investment losses. If investment losses reduced the value of this IRA to 8k, the 4k of basis is still there and any distributions would now be only 50% taxable instead of 60%. Gains of course work in the reverse and would increase the taxable portion.