I may turn my IRA over to a money manager who charges a 1% annual fee. Can that money come directly from the IRA without triggering taxes or a penalty? I am under 59½.
Yes, the management fee can be deducted from the IRA, and it's treated as an expense of the IRA rather than a distribution, so it isn't taxable or subject to the penalty. But just because you can have the fee deducted from the account doesn't mean you should, says Jeff Levine, IRA technical consultant with Ed Slott and Co., which provides IRA information for financial advisers.
It's often best to pay the management fee out of your pocket instead, if allowed by the company, says Levine. True, you don't have to pay taxes on IRA money you use to pay the fee, so it's cheaper than using after-tax money. But "if the fee is deducted directly from the account, you're reducing the amount of money that is growing tax-deferred for retirement," he says. "This would be even worse with a Roth IRA, in which you're stripping away money that would otherwise be growing tax-free for life."
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
You also can count investment management fees you pay out of pocket as a "miscellaneous itemized deduction," such as unreimbursed employee expenses and job-search costs, which are tax-deductible after these types of expenses total more than 2% of your adjusted gross income.
-
5 Types of Gifts the IRS Won’t Tax: Even If They’re BigGift Tax Several categories of gifts don’t count toward annual gift tax limits. Here's what you need to know.
-
The 'Scrooge' Strategy: How to Turn Your Old Junk Into a Tax DeductionTax Deductions We break down the IRS rules for non-cash charitable contributions. Plus, here's a handy checklist before you donate to charity this year.
-
IRS Says You Made a Tax Return Mistake? A New Law Could Help You Fight BackTax Law Updated taxpayer protections change what the IRS must explain on error notices and how long you have to respond.
-
Getting Out of an RMD Penaltyretirement When your brokerage firm miscalculates your required minimum distributions, you have recourse.
-
Borrowers Get More Time to Repay 401(k) Loans
retirement If you leave your job while you have an outstanding 401(k) loan, Uncle Sam now gives you extra time to repay it -- thanks to the new tax law.
-
It’s Not Too Late to Boost Retirement Savings for 2018
retirement Some retirement accounts will accept contributions for 2018 up until the April tax deadline.
-
How to Correct a Mistake on Your RMDs from IRAsretirement If you didn't take out the correct required minimum distribution because your brokerage firm made a mistake, the IRS may show some leniency.
-
Making the Most of a Health Savings Account Once You Turn Age 65
Making Your Money Last You’ll face a stiff penalty and taxes if you tap your health savings account for non-medical expenses before the age of 65. After that, the rules change.
-
Reporting Charitable IRA Distributions on Tax Returns Can Be Confusing
IRAs Taxpayers need to be careful when reporting charitable gifts from their IRA on their tax returns, or they may end up overpaying Uncle Sam.
-
Make the Most of the New Military Retirement Plan
retirement The government is offering a new retirement option so that service members who leave the military before qualifying for a pension can still receive some benefits.
-
How Changes in Income Affect Medicare Premiums
Medicare Medicare beneficiaries can see their premiums go up if their income rises, although for some that increase will be only temporary.
