Advisor Fees Under TCJA – two questions

Submitted by Jill Kaz on Mon, 2018-03-12 16:01

Given the new tax environment and the inability to deduct AUM fees from taxable accounts, under what scenario/scenarios does it NOT make sense to self-debit IRA AUM fees from a traditional IRA or other non-Roth qualified account (solo 401K, SEP, SIMPLE etc.)?

Also, for clients taking RMDs, (especially when they don’t need it), would they be better off paying the AUM fee from taxable to as to not increase the amount they have to take from the IRA?



Submitted by Alan - IRA critic on Mon, 2018-03-12 16:32

  • https://www.kitces.com/blog/tax-deduction-financial-advisor-fees-commissions-ira-taxable-section-212-expense-tcja/
  • In the above Michael Kitces article, there is a chart which indicates a break even holding period under which it may be preferable to pay fees from taxable accounts, even for a pre tax IRA. Holding period is quite long, so would not apply to very many people.
  • If subject to RMDs the direct billing of the IRA is still recommended because the fees are still paid with pre tax money, and future RMDs will be reduced as well. If there is any basis, the share of basis will rise because the fees will not reduce the basis amount. Even if client preserved IRA balance, that will just result in higher RMDs in the future, all or mostly taxable and taxable account balances would be reduced. Heirs would likely rather inherit a taxable account than a pre tax IRA with inherited IRA RMDs which would be taxable. Taxable assets will also get a basis adjustment upon client’s passing.

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