Can a broker or other sales intermediary receive a commission on purchase of Individual Retirement Annuity for herself?

A broker/agent can not receive a commission on the sale of securities to his or own IRA under the Code. However, there are situations where sales can be made available without certain charges. E.g., mutual funds may be sold to broker-dealer registered representatives (and in some cases certain members of their family) at net asset value (without front end loads for class A purchases), regardless of the purchase size.

Neither can the broker/agent direct that the commission be paid to another broker/agent. I am certain that the firm has a policy that covers this type of purchase.

The agent should check with his or her compliance department on how to effectuate the purchase in his or her own account.

As Gary Lesser says ….

A person shouldn’t buy an IRA if the transactions would result in providing compensation of any kind to herself, or to someone who’s a relative of the would-be IRA owner. A nonexempt prohibited transaction tax-disqualifies the account from IRA tax treatment, which ordinarily would make the “IRA” unsuitable for the investor.

For this purpose, a relative includes a spouse, ancestor (for example, a parent or grandparent), lineal descendant (for example, a child or grandchild), or a spouse of a lineal descendant. IRC § 4975(e)(2)(F), 4975(e)(6).

Even if not related, there might be a PT if a set of transactions does indirectly what the fiduciary or disqualified person must not do directly, or if the compensation recipient is a person in whom the IRA buyer has an interest that could affect his or her best judgment in making IRA decisions. IRC § 4975©(D)-(F).

Further restrictions might apply under banking, insurance, or securities law.

One solution is to find a “product” that has all sales margins stripped out. Another, as Gary Lesser suggests, is that many funds allow a registered representative of a broker-dealer that has a sales agreement with the fund’s underwriter to buy A shares at net asset value – that is, without the sales load. (Often, this privilege extends to the rep and his or her spouse and children.)

About CJA’s inquiry, an insurance company and its agents sometimes have a similar arrangement by which a licensed producer may buy a different “version” of an annuity contract. For example, a contract issued to a producer might have no “surrender” or contingent deferred sales charge and a reduced mortality-and-expense charge.

Again, this works only if there is no compensation. In my view, this precludes not only money compensation but also production credit and counting toward a “recognition event” (such as, the leading producers’ trip to Hawaii).

For more background, you should buy Gary Lesser’s books:

 Quick Reference to IRAs
 Roth IRA Answer Book
 SIMPLE, SEP, and SARSEP Answer Book.

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