My company charges an administration fee and custody fee on the IRA's we service. A client has inquired to have the fees billed to them rather than charged against their IRA Account. What is the tax advantage to this? Are the fees paid directly by the IRA holder tax deductible?
Thank You, AJM

If the fees are paid from the IRA account, they are not deductible. If they are paid from outside the IRA account, they can be deducted as a Miscelaneous deduction on Schedule A, subject to the 2% limitation.

Don

Don:

I just want to clarify something. Does this include both investment management fees and admin / custody fees? Thank you, AJM

In short, Yes.

The Sch A Misc. deduction is allowed for most legitimate investment expenses not necessarily limited to IRA's. This would included Mgmnt and custodial fees, investment magazines, the percentage of AOL monthly fees that you use for investment tracking and research, etc.

Don

IRA Fees: you have many choices of brokerages and mutual funds that have no IRA fees. Ask you custodian to waive their fees, some will do so upon request. Consider consolidating your IRA assets, many custodians waive the fees after assets exceed $10,000. Some mutual funds will waive fees if the combined assets in various funds is significant. Some brokers/funds will waive fees if you have an automatic deposit each month.

All things being equal, no fees beats deductions. It is worth a few phone calls.

Rules vary. If you are paying more than $20 a year in fees, you should consider finding a new home. But first, ask for a waiver. Smart custodians do not want to lose a customer over small fees!

The other advantage of this is that by paying the fees outside the IRA, a larger amount of assets is allowed to grow tax deferred.

I guess I was not clear on this. There is little reason to pay IRA fees unless you totally turn over your investment decisions to a broker with lots of service.... and quality service is very rare.

For example, anyone with IRA assets over 10k can go to Schwab and select from hundreds of mutual funds. Etrade does not charge any IRA fees. If you have a small IRA, why not place it with a no fee brokerage until it grows were it is eligible for zero fees elsewhere.

Fees are nickle and dime thinking. Most IRA money stays put for a long time, so many custodians will bend over backwards to "lock up" your IRA assets.

I prefer no fees than deductable fees, don't you?