Management charges paid from your IRA account have never been deductible on your federal tax return. Dear Vince: Certain administrative IRA charges, whether you are making distributions or not, are deductible, but must be paid by funds that do not belong to the account owner's IRA. If, however, the fee would have been fully deductible if it had been paid with external dollars, then the best thing is to simply pay with external dollars and allow the IRA to maximize its continued growth with deferred taxes. Others, such as Charles Schwab, only charge custody fees for investments in non-publicly traded IRAs.
However, in practice, investment advisory fees are usually not fully deductible for clients, partly because of the minimum 2% AGI limit for miscellaneous itemized deductions, but more commonly because it is an adjustment of the AMT and, consequently, most or all of the deduction is lost when clients are exposed to AMT. If you look at your individual retirement account (IRA) statement, you'll be surprised to find that you pay a fee simply because of the privilege of having an IRA. This is because the fees you would otherwise collect from that IRA will continue to increase with deferred taxes over time. Now that you can't qualify for tax relief for these costs, here's how you should consider paying for the costs related to your IRA.
It should be noted that there is a requirement that the fee be deductible to be attributable to income, which the IRS has interpreted as taxable income; as a result, investment management fees for tax-exempt investments, such as municipal bonds, are not deductible. Since your broker deducts it from your IRA, this investment fee is not deductible for you, since it comes from pre-tax money. In the end, this means that for customers with very long terms (or where the fee is fully or partially deductible), it is better to pay with external dollars. In other words, IRA management fees paid with cash or personal check that are not deducted from the IRA can be deducted as investment expenses, subject to detailed deduction limits.
In fact, the IRS even allows investment advice fees to be deducted when paid on behalf of retirement accounts, such as IRAs and 401 (k) plans. Because IRA depositary fees and related investment advice fees can be paid from retirement accounts, as long as the commission is attributable only to the retirement account. The key to deducting IRA fees is to write a check or use a credit card to pay the broker annual maintenance fees.