SEP IRA Fees

[S T]

Question on SEP IRA fees - never gave it much thought before, but a question arose.

Sched C T/p who has SEP IRA - paid account mgmt fees outside of the Account, check or Credit Card - significant fees (not the small $20-$50 fees)

Are those fees deducted on Sched C or Sched A subject to 2% reduction??

Sandy

[oceanlovin'ea]

Schedule A

I would say it is a personal deduction on the Schedule A. It is not related to operation of the business.

Linda, EA

[JohnH]

Since your question has been answered, I have to ask.
What is the client doing paying SIGNIFICANT management fees for a SEP IRA?
(Or maybe I don't want to know).

[FEDUKE404]

Good question!

Since your question has been answered, I have to ask.
What is the client doing paying SIGNIFICANT management fees for a SEP IRA?
(Or maybe I don't want to know).

You know, I had the same exact question!

If something like an "annual maintenance fee" that is an easy one.

If something like paying big bucks (to avoid transaction fees) to churn the assets within the account......as is common......that is a completely different issue.

As for the original question, the allowable "management fees" should go to Schedule A, if they are "paid separately." I don't recall ever seeing those much >$100/year.

Let us know!

FE

[JohnH]

Glad to know I'm not a lone ranger with that question.
The first thing that came to my mind was "churning".
The second thing that came to my mind was "self-directed IRA".

[ChEAr$]

Just to clarify, these fees are related to the IRA, and not the SEP, therefore go to schedule a.
However, if related somehow to the maintenance of the SEP, then to schedule c.
But I've never heard that to be the case.

[FEDUKE404]

Clarify please

It might help here if we knew the exact nature / approximate dollar amounts of those "significant fees." (When were they paid and how were they paid?)

FE

[Burke]

I had a client that had those. And they WERE significant. Lots of trading going on. (Due to their "computer models" I was informed.) I would say several thousand $$$ every year. Total in the account averaged $300K. Tried to delicately show him he was never making any gains, even in the boom years. He finally got it and removed the acct from the "investment manager."

[FEDUKE404]

Lots of trading should be irrelevant

I had a client that had those. And they WERE significant. Lots of trading going on. (Due to their "computer models" I was informed.) I would say several thousand $$$ every year. Total in the account averaged $300K. Tried to delicately show him he was never making any gains, even in the boom years. He finally got it and removed the acct from the "investment manager."

Maybe I slept through that part of tax class, but it's always been my understanding that whatever goes on within an IRA account is irrelevant. In the simplest of terms, it's only "money in" and "money out" that should concern us (the so-called "black box" approach).

Surely you cannot expect to have ten stock trades within an IRA account and then take the related "broker fees" for those ten trades as a separate deduction??

Granted, an annual account management fee (if paid from OUTSIDE of the IRA account) is, in the eyes of the IRS, a slightly different animal.

Someone please correct me if I'm wrong.

FE

[appelman]

Brokerage commissions always remain in the retirement account.

So do investment management fees that are paid from the account. As others have pointed out, investment management fees paid from outside funds are Schedule A deductions. The fact that commissions may be abated or discounted for investment management clients does not convert the management fees into brokerage commissions.

[S T]

Thanks for the thoughts and in the past I have always included IRA fees "if paid outside of account" T/p check or credit card charge, on Schedule A.

It was a question client asked -- why Sched A versus Sched C expense, so thought I would just go to all of the people on TTB that I know and trust and see if I was overlooking something.

Second part, I have asked the same question as to why the Fees are so high on the Maintenance Fees/Acct Mgmt Fees (Sep-IRA and Roth IRA) the actual balances in the accounts are approximately $ 30K - Fees are $300 on one and approx $ 400 on another.

Maybe I am wrong, but I believe the fees on the IRA-SEP-IRA accounts to be more than what they should be.

If I find out why or how the "Fees" are based I will post back just FYI

Sandy

[JohnH]

The first 2-1/2% he earns on the accounts goes to the manager - actually more than that since he is paying the fees with after-tax dollars.

Sounds like a great rate of return... (for the manager).

[Roland Slugg]

As several others have already said, IRA custodial fees are deductible on Schedule A. This includes fees for a SEP, which is just a special kind of IRA.

For most people, however, it is foolish to pay those annual fees outside of the IRA. Most people either (a) don't itemize, or (b) don't have enough in the "Miscellaneous Deductions" bucket to exceed the 2% N/D floor. For them it's better to let the custodian/trustee take the money directly from the IRA whenever possible. That way the fees are paid with before tax dollars instead of after tax dollars.

[Snaggletooth]

Miscellaneous Deductions

No greater myths from the street are subject to as much disappointment as the Misc Deductions subject to the 2%.
"My [nurse] sister-in-law deducts the rent on her lockbox, why can't I??"

I regard whopping brokerage fees for the privelege of the broker doing all that research as the latest in a long list of schemes from financial companies to part a fool and his money.

Last year, I had several 1099-Bs with transactions so numerous they had to be mailed and summarized on the new 8949. Hundreds of transactions. Curious instance where one large brokerage house in Huntsville and the same from the Knoxville office issued voluminous 1099-Bs with large groups of identical purchases and sales. This means that the Huntsville broker was not "researching" these stocks, nor was the Knoxville broker. It was being done upstairs within the brokerage company, and the branch offices were being told what to invest and sell. Essentially, anyone anywhere who gave their broker free reign to their portfolio entered into these exact same trades.

Amazing how the customer doesn't have a clue as to how his portfolio is doing. Brag to you in years where they make 8% while the market is really up 14%.

Maybe I was born at night -- but not last night.

[S T]

More continued on this as most of you "beloved" posters asked Why Large Fees - Still waiting for some statements that I might be able to analyze (I usually only see the contribution statement for the Tax Year and then Verify Fees Charged)

The Client's reposnse to my "curious" question of why the fees are so large on the Sep IRA or Roth-Ira accounts was----"I sent an email to ask (Broker) - and we presume that we are making 12%- so to us it seems okay --- You (as in me) have mentioned this before and we never think about it"

I suspect - that Client Remembers what the Broker Account said at 12% return on their investment when they signed on - which was probably 3-5 years ago - and the client has paid no attention to what the fees are which would reduce the yeild/earnings and for that matter has not paid attention to the "yield" either.

So we will see!

Sandy