Investment Expenses

[Gary]

Are fees paid to a financial advisor to manage a Roth IRA an investment expense on Schedule A?

[jaybird]

How I understand it, it must be a tax bearing account to deduct investment expenses. Since the earning in a Roth IRA are not taxable, I would not think you could deduct the fees associated with it.

[Mo Sheets]

Deductible?

According to the IRS website:

"Trustee's Administrative Fees for IRA
Trustee's administrative fees that are billed separately and paid by you in connection with your individual retirement arrangement (IRA) are deductible (if they are ordinary and necessary) as a miscellaneous itemized deduction subject to the 2% limit. For more information about IRAs, see chapter 17. "

The website doesn't specify Traditional or Roth, however, further down the list is non-deductible expenses which states:

"Tax-Exempt Income Expenses
You cannot deduct expenses to produce tax-exempt income. You cannot deduct interest on a debt incurred or continued to buy or carry
tax-exempt securities.

If you have expenses to produce both taxable and tax-exempt income, but you cannot identify the expenses that produce each type of income, you must divide the expenses based on the amount of each type of income to determine the amount that you can deduct. "

Based upon this information, I would probably say not deductible, but I'd be interested to see what others would say.

Mo

[Snaggletooth]

Deduct It

I would say this would fall into the same enumerated categories that include tax preparation. Tax preparation is not associated with the production either but is allowable as a deduction.

In Pub 529, Deductible expenses also include "Trustee's Fees for your IRA, if separately billed and paid." No distinction is made between a traditional or Roth IRA.

Of course, the 2% threshold must be met.

[Gary2]

I'm not sure that the trustee's administrative fees and a financial advisor's fees would be considered the same. One is for administering the IRA, producing statements, accepting investments, mailing the 5498 and/or 1099-R, etc. The other is for deciding where to invest.

[Burke]

I have both kinds of clients. Their IRA Trustee fees are deductible if paid by the client outside of the IRA, not deducted from within the fund. Financial mgmt fees are not deductible for tax-free accounts. I have one which contains approx 50/50 of taxable and tax-free vehicles, and we take half the fee each year.

[Gary]

Thanks

Thank you all for your comments. I have not been taking a deduction for fees on the Roth IRA. This is on my own tax return. I only asked because someone (not on this board) suggested that it was a deduction.

[FEDUKE404]

Can't take them

I think this topic has been rattled around before on these boards...

IIRC, most folks felt you could NOT take any expenses involved for the management/operation of a Roth IRA account.

Those who cite "fees for an IRA" (separately paid, of course!!) and then the 2% Sch A issues are apparently missing the underlying nature of the Roth IRA account.

OTOH, perhaps the IRS gurus need to clarify their instructions to make it clear there is a difference between "an IRA" and "a Roth IRA."

Mo Sheets raised a valid point with the comparison between how fees paid to a broker for management of taxed/untaxed income must be allocated. (And you often then need another such adjustment for the state tax return!!) Oh yes: When I have seen such ratios calculated by the firm, they have used the annual income (not the "vehicles") for the allocations....

I think going the route of the financial advisor's fees is a red herring: If you take that approach, a person could deduct "the advice" he receives for investing only in tax-free muni bonds. I'm not sure that dog would hunt either....

FE