Can You Deduct the IRA Management Fees?

Traditional IRAs allow deductions on contributions.

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An individual retirement account is a smart way to save for your post-employment years. The traditional IRA allows you to deduct contributions from your income taxes; you don't pay taxes on any earnings in the account until you withdraw the money, when your (in theory) reduced income level will mean a lower tax rate. But the management fees that you pay to someone to handle the account are no longer deductible.

Tip

Under the new tax laws, you can no longer deduct IRA management fees.

Deducting IRA Management Fees

The IRS allows you to deduct expenses associated with a capital investment, such as a brokerage account in which you buy and sell stocks, bonds and mutual funds. If the broker charged a commission on a trade, the commission is added to your cost basis, and it's subtracted from sale proceeds when calculating the capital gain or loss. That expense can still be paid on a pretax basis under the new tax law. However, if you are charged a general management fee for handling the account, that expense is no longer deductible. In most investment accounts, including IRAs, the manager charges a percentage of the account size, typically 1 percent or 1.5 percent of the assets under management.

Exceptions to Deductibility

If your IRA suffers a loss of capital, you may not deduct this loss until you've withdrawn the entire account balance, and the amount of money you've received is less than the basis – the money that you contributed to the IRA over the years. In a Roth IRA, there are no taxes due on account gains when you withdraw, but you can deduct losses in the account.

2018 Tax Changes

Although the tax changes eliminate the tax deductibility of investment management fees, it isn't a big loss for many investors. The amount of fees had to exceed 2 percent of adjusted gross income, and many did not pay fees in an amount that exceeded the income they brought in each year. It's worth noting that the standard deduction has nearly doubled under the new law, so you may be able to easily make up any tax savings you lost.

Filing 2017 Taxes

If you're still filing taxes for the 2017 tax year, you're in luck. IRA custodial fees are still considered miscellaneous itemized deductions, in the same family as tax-preparation fees and unreimbursed employee expenses, so you can deduct them. However, these deductions are subject to the 2 percent rule: You add up all such expenses, and you can deduct only any amount that exceeds 2 percent of your adjusted gross income. You list itemized deductions on Schedule A and carry them over to your 1040; you may not take a standard deduction and deduct management fees as well.

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About the Author

Founder/president of the innovative reference publisher The Archive LLC, Tom Streissguth has been a self-employed business owner, independent bookseller and freelance author in the school/library market. Holding a bachelor's degree from Yale, Streissguth has published more than 100 works of history, biography, current affairs and geography for young readers.


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