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Maximizing Your Options for IRA Fee Payment – What’s New
By Washington Trust / April 13, 2018
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The recently enacted Tax Cuts and Jobs Act, signed into law on December 22, 2017, makes numerous changes to the rules governing taxation of individuals. One of these changes is the elimination of all miscellaneous itemized deductions, which currently include IRA management fees. If you are an individual paying your IRA fees from non-IRA assets in order to obtain a tax deduction annually, you may want to reconsider this strategy going forward.

PRIOR TAX BENEFITS

Prior to the new tax law, individuals had the ability to claim the amount of expenses that represented more than 2% of their adjusted gross income on their individual returns. Specifically regarding IRAs, the IRS allowed an individual to deduct investment advisory fees that were separately billed and paid with non-IRA fund assets, subject to the itemized deduction limits. As a result, tax advisors may have recommended that IRA owners pay for advisory fees from their own personal funds instead to help ensure deductibility on the individual’s income tax return and to allow the IRA to maximize its ongoing tax deferred growth. This was a valuable tax benefit to many IRA account holders itemizing their deductions prior to the recently enacted laws.

RECONSIDER PAYMENT OF FEES DIRECTLY FROM IRA

Under the new tax laws for individuals, effective 2018 through 2025, all of the miscellaneous itemized deductions subject to the 2% floor are eliminated. For IRA owners, this means that advisory fees regardless of where they are paid are not tax deductible as they were in years prior. Due to this recent change, IRA owners may now want to weigh the benefits of paying fees directly from your pretax IRA account, especially if you are required to take minimum distributions annually. Paying advisory fees directly from your retirement account reduces the taxable amount to be distributed and allows you to pay your fees with pre-tax dollars.

As always, it is important to consult your tax advisor before making any decisions affecting your individual returns.



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The opinions expressed in this blog are those of the author and may not reflect those of Washington Trust Wealth Management. The information in this report has been obtained from sources believed to be reliable, but its accuracy and completeness are not guaranteed. Any opinions expressed herein are subject to change at any time without notice. Any person relying upon this information shall be solely responsible for the consequences of such reliance. Performance is historical and does not guarantee future results.

Such information does not constitute legal or professional advice as all situations are unique and are based on individual facts and circumstances.

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