Allan-
I have a client whose CPA has advised them to pay their investment management fees for Investment Management Accounts from their IRAs with pretax dollars, now that these fees are no longer deductible after tax reform. The client says their other advisors have allowed this arrangement.
Would this be considered a taxable distribution to the client if the fees are not attributable to the account?
Beth
For clients currently taking RMDs (and do not need the money), would you still recommend taking the Advisor Fee from the IRA or would it be better to switch it and take it from a taxable account?
It would be best to take the TIRA fees from the TIRA, and all other fees from a taxable account including fees for a Roth IRA. If the advisor sends you a single bill, you should pay the portion not related to the TIRA and ask the advisor to bill your TIRA for the rest. In determining the breakdown yourself, pro rate using account balances as of the same date for all accounts, perhaps using the end of the quarter before the date of the bill, for example.
Permalink Submitted by Alan - IRA critic on Wed, 2018-03-07 20:55
Advisors are going to have to adjust their billing practices in the wake of the TCJA, since the misc itemized deduction subject to 2% has been suspended for 8 years. This means that if the advisor is paid by investment commissions rather than AUM fees, the client effectively pays pre tax. However, to the extent that the fees are properly allocated and billed directly from a TIRA account, the client is also paying pre tax instead of with after tax dollars. This is likely to result in schemes to bill the IRA for non IRA or even Roth IRA management fees. At best the IRS would consider this a taxable distribution or a contribution to the IRA, at worst a prohibited transaction for self dealing with severe consequences. It remains to be seen how aggressive the IRS will be in response to these practices. Advisors may not fully understand this situation, but CPAs should. Fees for managment of accounts other than TIRA accounts should not be billed to the TIRA.