I recently left my company and rolled over my 401(k) and
pension into a SEP-IRA that I had my financial adviser set up for the S-Corporation
consulting company that I formed. In the process, however, there were front-end
sales charges of 5.75 percent for the Class A qualified mutual funds that I invested
the money into. The costs were taken from the pretax dollars that I was investing.
So, $50,000 rolled over and 5.75 percent was taken as sales charge for a total
of $2,875 of pretax dollars that I "lost" in the rollover. Can I claim
the $2,875 on my income tax as part of my investing expenses? The same goes for
the quarterly maintenance fees ($25 each) that I'm charged on the qualified plan;
can I claim those as well? My CPA/small business adviser and my financial adviser
aren't even sure if it's deductible in my itemized deductions because of the pretax
nature. -- Christopher
It doesn't sound like a great investment
when you lose almost 6 percent of your money off the bat. This ties you into the
fund for a period of time in order to recover this cost. An employer can pay the
administrative costs of maintaining a qualified plan and deduct these expenses
on its tax return. In your case, the plan expenses of $25 a quarter could be paid
by your S-corporation and would be deductible on the company's tax return. The
sales charge is an investment expenditure and would not be reimbursable by the
Additionally, the load charge would not be
deductible by you as the participant since the fund consists of pretax dollars.
Since the pension plan is reduced by this cost, later when finds are withdrawn,
you won't be taxed on this amount, which gives the same effect as a deduction.
For example, if you didn't roll over the funds but instead took a distribution
you would have received $50,000 and paid tax on that amount. If you bought the
fund shares, you would have invested $50,000, but would only have an asset worth
$47,125; if you immediately sold it you would have your $2,875 deduction, or a
net of $47,125. This would be the same as if the pension now turned around and
gave you the $47,125 left in the plan on which you would pay tax.
doesn't sound like you're being well counseled by your advisers either on