Can I Claim IRA Fees as a Tax Deduction? | Ed Slott and Company, LLC

Can I Claim IRA Fees as a Tax Deduction?

By Beverly DeVeny and Jeffrey Levine
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@IRAGuru4EdSlott

This week's Slott Report Mailbag, proudly sponsored by GoldCo Precious Metals, answers questions on claiming IRA fees as a tax deduction and whether or not you should have a separate Roth IRA for every conversion. As always, we recommend that you work with a competent, educated financial advisor to keep your retirement nest egg safe and secure. You can find one in your area here.


1.

I have a large IRA that is looked after by my Stockbroker who undertakes the investments and charges me a 1% fee per annum. It is paid automatically from my IRA each quarter. Can I claim this amount as a deduction on my annual income tax return? 

I would very much appreciate your response, as accountants in Charlotte appear divided of the answer.

Answer:
IRA fees can be deducted when several conditions are met. The fee must be billed to you and paid by you to the IRA custodian. (This rule came out before electronic transfers were envisioned.) It is deductible as a miscellaneous itemized deduction. It is subject to the 2% floor. So, in order to deduct the fee you must pay it out of pocket, you must itemize deductions, and your deductions must exceed 2% of your income.


2.

Ed,

I opened a Roth IRA in September 2011 by converting one of my IRAs, and then after quitting my full-time job in 2014, I started a part-time position in 2015. In 2015, I will be under the income limits for contributing to a Roth, so I put $5,500 into the same Roth this year (2015). I also converted a portion of another IRA into this same Roth account in March of 2015. Did I mess up by mingling the dollars into my original Roth opened in 2011? Someone told me I should have opened a new Roth for the 2015 contribution and the conversion, so as to allow the dollars from the original Roth to be tax-free in 2016. I am 65 years old, as I know age always matters to the IRS.

Thanks for any help with theses questions and keep up the great work and info you provide to your followers.

Answer:
You do not always need separate Roth IRAs for your conversions and contributions. Since you are over the age of 59 ½ and not subject to any early distribution penalties, the only 5-year rule you need to worry about is the one for qualified distributions. That clock starts running when you establish your first Roth IRA and counts for all subsequent Roth accounts and additions to those accounts. You reach that point as of January 1, 2016 for all of your Roth IRA funds. For future conversions, you might want to consider doing them into a separate account to make a recharacterization a little bit easier. Once the recharacterization date (October 15 of the year after your conversion) has passed, the Roth IRAs can be combined.

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