October 13, 2015 in Taxes

You can pay asset management fees from your IRA or with other assets

Dear Tax Talk,

My IRA is held in a Fidelity account. However, Fisher Investments manages it, making all the trade decisions and executing the trades. I have no direct control over the account.

Fisher charges me a percentage of the balance quarterly. Can I have the Fisher asset management fees paid directly from my IRA to Fisher Investments without paying taxes on it as a distribution? Thanks, and best wishes.

— William

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Dear William,

Yes, you can have the asset management fees paid directly from your IRA account and it will not be taxable to you as a distribution. This is because advisory funds drawn from a retirement account are considered a tax-free withdrawal from the account.

However, you may want to take some time to go over another option available to you whereby you pay those asset management fees from funds held outside of the IRA, as this may generate a tax deduction for you.

How the tax deduction works

  • If you pay the asset management fees with funds held outside of the IRA, they are deductible as an itemized deduction on Schedule A of your tax return, reduced by 2% of your adjusted gross income, or AGI.
  • For example, if your AGI is $100,000 and your advisory fees are $5,000, you would be able to deduct $3,000. By not taking the funds from your IRA account, they remain in the IRA and continue to grow on a tax-deferred basis.

You should sit down and go over which situation is going to work best for you, as you can see there are several variables involved. I think you will find it time well-spent. Be sure to revisit the issue every year as it should be looked at on a year-by-year basis rather than a one-time decision.

Thanks for the great question and all the best to you.

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