Paying advisory fees from an IRA

Submitted by Scott Gelbach on Thu, 2018-01-18 18:22

We have heard from several different advisors that they are having their clients’ advisory fees aggregated and taken from IRA’s. Our understanding as well as from what we can find online is that only fees attributable to an IRA can be taken from the IRA. For example, you cannot take the advisory fee for an individual or trust account from an IRA, even if the IRA account owner is the same person. Is there an IRC loophole that allows for non-IRA fees to be taken from an IRA?



Submitted by Alan - IRA critic on Thu, 2018-01-18 23:21

  • No loophole. You are correct that only fees attributed to the IRA assets can be paid pre tax from the IRA. Fees attributed to a Roth IRA can only be deducted from the Roth IRA and of course those would be paid post tax. This means that advisors are going to have to break out the fees per account or combinable groups of accounts. In the past IRA fees could be paid with outside funds and possible qualify for a misc deduction, but that deduction has been terminated by the TCJA. Probably the best approach is to have TIRA fees deducted directly from the TIRA, and Roth IRA fees paid from other funds rather than being deducted from the Roth IRA.
  • If an IRA paid such fees, at best it would constitute a taxable distribution plus penalty or at worst a prohibited transaction that could disqualify the IRA, so the financial industry is going to have to make adjustments to their billing methods to avoid these issues.

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