Discussion:Investment Mgmt. Fee
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Discussion Forum Index --> Tax Questions --> Investment Mgmt. Fee
| 23 February 2006 | |
| Is Investment Portfolio Management Fee of IRA's deductible on Sch. A with the 2% floor? Client has about $30,000 he pays every year to a financial institution for handling/managing his investment for him. He has a sizeable account with the $30,000 charge being 2% of his portfolio. I would think it is, please advise if otherwise. Thanks. | |
| 23 February 2006 | |
| I believe the correct answer is yes IF the fees are billed and paid separately. Fees deducted from the account would not be deductible. | |
| 23 February 2006 | |
| Unfortunately, the fees were deducted directly from the IRA account. I would have to amend the return? Where can I find a substantiation for this? I've looked in Investment Income publication and did not find any mention of how fees should be deducted. Would you point to the IRS code, Publication and specifically which page. I appreciate any help you can give. | |
| 23 February 2006 | |
| Hopefully someone else will shed some light here. I cannot find this in the code, (probably right in front of me), but pub 17, page 192, does say that IRA trustee admin. fees are deductible if billed and paid separately. | |
| 23 February 2006 | |
| I'm wondering if this applies to investment accounts in general or just IRA's? | |
| 23 February 2006 | |
| Reg. 1.212-1 appears to allow a deduction for certain investment expenses, paid or incurred. Cannot find where it says the fees must be billed and paid separately. Still looking. | |
DR BRISKET (talk|edits) said: | 23 February 2006 |
| I don't have the regulations in front of me, but I am quite confident that IRA maintenance fees must be paid separately, rather than deducted from within the area. Think about the mechanics of this. Assume a very simple situation. Taxpayer takes out a $4,000 IRA in mutual funds last year. Then assume the IRA custodian deducted $200 in custodial fees. At the end of the year the account is worth $4,700 through growth and dividend reinvesting. This is with the fees already deducted.
The taxpayer already is deducting $4,000 for the IRA. If he drew it out on the last day of the year, he would receive a Form 1099R for $4,700. Had there not been the $200 custodial fee deducted out, he would pay tax on $4,900, and not $4,700. Thus, the taxpayer, in a sense, is receiving the benefit of the deduction for the fees when he withdraws funds from his IRA, without the restriction of the 2% AGI contraints. | |
| 23 February 2006 | |
| That does make sense for an IRA account. What about for a regular investment account? | |
DR BRISKET (talk|edits) said: | 23 February 2006 |
| In non-IRA accounts, the fee should be deductible. That is because the taxpayer is taxed currently on the reinvesting dividends that take place withing the account. Assume the account pays $500 in reinvesting dividends for the year, and $100 is deducted for maintenance fees. Taxpayer will still receive a 1099 DIV for $500, even though the account only netted $400. Thus, to claim a tax benefit for the $100 deduction from his account, he will have to itemize, and meet the 2% AGI threshhold. Doesn't sound like much of a tax break to me!!! | |
| 23 February 2006 | |
| I wanted to make sure it is done right because it involves a sizeable amount here (I don't want to end up in jail!) For clarification: Client has $2 million in two IRA's. Half of it is in a 72(t) Distribution acct. where he gets regular consistent monthly payments, and the other was direct rollover from his former employer's retirement plan, it is now a regular IRA. The financial institution (SunTrust) is charging him approx. 2% of his total portfolio value, which is about $30,000 total fee. If this is not deductible on Sch. A, then I really need to amend!! I still cannot fine the rules where I can clarify this. PLEASE HELP!! | |
| 23 February 2006 | |
| if not paid directly and personally by taxpayer (and even then i dont know if deductible (only maintenance fees for $30 or so that i know of can be deductible as sch a) but would be foolish to do considering amt might be no tax benefit) ,ie paid with IRA funds, you cannot take a sch a deduction. above comments are correct. you are double dipping bye | |
| 23 February 2006 | |
| My husband retired in 2000 and rolled over pension funds (approx. $450,000) into various IRA accounts through a financial advisor (firm). They draw 1% annually on the current portfolio balance (billed and withdrawn from our accounts quarterly). I've been deducting those fees for years now on Schedule A under "Investment counsel and advisory fees". Despite the 2% limitation, we still end up with a sizable deduction. Funny part is, these advisors don't make it easy to spot their fees within the paperwork they frequently send you. Every year I end up calling them for a breakdown. Just thought this might be of interest. | |
| 23 February 2006 | |
| Now I'm worried. I just read in "The Tax Book" (similar to the Quick Finder) the following: Investment expenses include....."IRA trustee fees, if separately billed and paid from funds that are not inside the IRA". | |
| 23 February 2006 | |
| IRA fees and investment management fees paid out of the IRA account are definitely not deductible. | |
| 25 February 2006 | |
| OK. I think I will have to amend the return. I jus did the calculation withought the $30,000 mgmt. fee and it doesn't change client's tax amount to due to his Credit form AMT on form 8801. Should I still amend even if no bottom line tax difference? | |
| 25 February 2006 | |
| It's the correct thing to do, plus, you won't lose any sleep over it. :) | |
| 25 February 2006 | |
| Thanks y'all. I really appreciate all your inputs! You guys are great!! | |
| 26 February 2006 | |
| Page 11 of Pub 529 says:
Trustee’s administrative fees that are billed separately and paid by you in connection with your IRA are deductible (if they are ordinary and necessary) as a miscellaneous item- ized deduction subject to the 2% limit. Page 14 says: You cannot deduct the following expenses. Broker’s commissions that you paid in connection with your IRA or other investment property. | |
| 25 March 2008 | |
| OK, here is a closely related question. Client has started taking mandatory distributions from IRAs. He pays a 2% management fee to firm that manages the IRAs. Up to this time, client has had fees deducted directly from IRAs and these fees have not been deductible as explained above. Now, when mandatory distributions begin, that money is now taxed. So the question is, are the fees that were paid in the IRA FOR THE AMOUNT WITHDRAWN AND NOW TAXABLE now deductible? Let's use some round numbers to illustrate. Example: $100,000 in IRA. Managment fee 2% or $2000 per year. Client withdraws 4% or $4000 as the mandatory withdrawal for this year (management fee for the $4000 would be $80). The $4000 that is withdrawn is now taxable income. Question: Can the client deduct the $80 fee subject to the 2% rule on his taxes? The fee had been paid out of the IRA, but now that money is taxable income. So is it deductible OR would client still have to pay the fee out of non-IRA funds? Obviously, the amounts above are simply for illustration as the real amounts are considerably higher and definitely have an impact on taxes. | |
| 25 March 2008 | |
| The deduction has already been taken. If the fees had not been paid from within the IRA there would be $102,000 available. | |
| 6 April 2009 | |
| I have a client that is insisting on deducting IRA management fees and even states that I can write up a statement showing I advised against it to protect me in case of an audit. I talked to his broker who stated "CPAs are of two minds on this, some want the fees to be paid outside the IRA and some just deduct it regardless". My client is not paying the fees separately. I said I would write the statement, but then reread the rules. I don't see a way to write a statement as he requested - this doesn't even get into the probability of success requirements, does it? | |
| 6 April 2009 | |
| and I wouldn't do it because it doesn't meet the 1/3 test, as you pointed out | |
| 6 April 2009 | |
| tell him to just start writing a check for the fees so he can deduct them properly | |
| 6 April 2009 | |
| And I wonder who the other CPAs (or tax preparers) the broker is talking about. The broker is located in OR which is one of the states that requires licensing of tax preparers. | |
| 9 April 2009 | |
| Update - client called today and said to not worry about me efiling his return. He called another CPA who said he could deduct the fees.
At least he already paid me and I don't have to worry about doing an incorrect return... | |
| 9 April 2009 | |
| no surprise that he found a CPA who would take a fraudulent deduction, unfortunately and very sadly for our profession. The profession used to be ranked higher than the clergy in trust. Now there are so many shisters out there who have passed the state exam that the rest of the industry should be very ashamed. I am. | |
| 9 April 2009 | |
| Or it could be that the other CPA is just incompetent and not fraudulent. That gives us all hope, doesn't it? | |
| 9 April 2009 | |
| Update #2 - the client called me back and said the other CPA agreed with me (there is hope after all, Kevin)! He said to efile the return I prepared. | |
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