Investment Advisor Fees

Submitted by russell twilley on Mon, 2016-01-11 16:46

We have Investment Advisor Fees for tax-deferred retirement accounts and taxable accounts. Each account pays Advisor Fees independently from funds in the account. Can we deduct on Federal Tax Return the Advisor Fees paid in Retirement Accounts?



Submitted by Alan - IRA critic on Mon, 2016-01-11 17:47

  • No, you cannot deduct fees paid directly from retirement accounts since those fees are mostly paid from pre tax dollars. If the advisor will agree to bill separately from the retirement account, and you pay the fee with outside funds, the fee qualifies as a misc itemized deduction subject to 2% AGI floor. The IRS has also approved handling “wrap fees” in this manner (PLR 2005 07021). This is even a better deal since wrap fees include a combination of advisory fees, IRA administrative fees, and commissions. Even though these fees could otherwise be deducted from the account, paying them with outside money is not considered a contribution to the account.
  • It is good that the fees are broken out by account. In some cases the advisor will assess a lump sum fee and not provide a breakdown and at times such a fee is even directly billed to one account. The IRS obviously does not want Roth IRA fees directly deducted from a TIRA account.
  • Note that I am not aware of any IRS ruling on Roth IRA fees vs the requirement that the deductible fees are for investments that generate taxable income. A Roth IRA will generate taxable income ONLY if the the account generates earnings that are withdrawn after the contributions are withdrawn and prior to when the Roth becomes qualified. In other words, most Roth IRAs do not generate taxable income. Nonetheless, I am not aware that the IRS has objected to fee deductions for fees applicable to Roth IRAs and paid from outside funds.

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