IRA fees

[Guest Dolores Lawrence]

Has anyone seen any guidance on the practice of taking an individual's personal brokerage account fees and his IRA account fees and charging the total of both fees to the IRA account? The idea is to decrease future taxable income from the traditional IRA by reducing net gain, since the fees charged to the personal account would be too little to deduct on a 1040 - miscellaneous deductions subject to the 2% floor. This doesn't pass the smell test, but I don't know if I can find specific guidance to prove it.

[Mary Kay Foss]

Wow. This is a new one on me. My concern would be that the payment of fees for another account of the taxpayer would be a prohibited transaction, which could disqualify the IRA.

I've had clients pay investment fees outside the IRA to maximize the deferral. When the fees are large enough to exceed the 2% limitation, they're also large enough often to cause an AMT liability.

Has anyone else dealt with the issue of the IRA paying fees?

[Guest reg_h2b]

Dolores, you mention that this is a practice. Have you seen this done at a brokerage company? Names? Amazing.

I agree with Mary as it would seem to be "a transfer of plan income or assets to, or use of them by or for the benefit of, a disqualified person". This is "self-dealing" or using an IRA in a way that confers direct benefits to the taxpayer prior to his/her retirement.

While I like the creativity of the scheme; I question the assumption. Would you really rather have the "deduction" but lose the tax deferral on that piece of the IRA used to pay the expense? I wouldn't.

Don't want to hijack your question but... what if we turned it around. Would say the "investment advisory fee" for an IRA be deductible if the fee was paid from a non-IRA account? Perhaps this is Mary's example, above.

We know that fees to "set up or administer" an IRA if billed and paid separately from the IRA are a deductible investment expense (subject to 2% floor). How about investment advisory fees? Same thing? I guess I'm asking what does the IRS mean by administer (in this context)? Does this only apply to the IRA custodian or could it also apply to the investment advisor (if separate) who manages the IRA through the custodian?

[John G]

1. I think that more than 50% of all IRAs and Roths do not have a fee now.

2. A common practice is to either ding the IRA/ROTH or to allow you to write a check to pay directly for the fee. It seems to me that you would hardly want to pay for a Roth fee from an IRA if you could pay directly with a check. Lets get a specific brokerage name and citation. Perhaps the original post got the from/to facts confused.