Published February 12, 2013
Dear Tax Talk,
Are investment fees tax-deductible? I understand that individual retirement account fees deducted from the investment account are not tax-deductible. I also see that investment fees paid to produce taxable income are deductible. My question is: If I pay a large brokerage firm to manage my IRA and it charges fees to the account, are these fees tax-deductible since I am taking an annuity from the account and it is included in my taxable income?
Dear Vince, Certain IRA administrative fees, whether or not you're currently taking distributions, are deductible, but they have to be paid by the account owner's non-IRA funds. You're right that investment fees paid to produce taxable income are tax-deductible. These expenses are miscellaneous itemized deductions subject to an overall reduction of 2% of adjusted gross income.
The key to deducting the IRA fees is to cut a check or use a credit card to pay the broker the annual maintenance fees. For example, if your broker charges you $150 for the IRA annually, you need to pay this to the broker from non-IRA assets for it to be deductible. The payment is not considered an additional contribution, but rather a miscellaneous itemized deduction.
On the other hand, if your broker charges a 1%-of-asset-value fee to invest your IRA, these fees cannot be reimbursed to the IRA. That would be considered an additional contribution as it is not an administrative fee. Since your broker is deducting this from your IRA, this investment charge is not deductible to you as it is coming out of pretax dollars.
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