How to Pay Your IRA Fees

By Joe Cicchinelli, IRA Technical Expert

Follow Me on Twitter: @JoeCiccEdSlott

The financial institution where you have your IRA, what we call your IRA custodian, is allowed to charge fees for maintaining and administering your IRA. If there are any fees associated with your IRA, they must be disclosed to you. The fees are usually listed in the IRA disclosure statement, which is one of the documents you received when you opened your IRA. IRA fees are usually in two broad categories: administrative fees and sales commissions.

Administrative fees are expenses for operating your IRA. They include a variety of different fees, which include record-keeping, annual maintenance, transfer, close-out, and other charges such as fees for getting an appraisal on a hard-to-value IRA asset such as a piece of real estate or a limited partnership.

The other category of fees is brokerage or sales commissions. These are commissions that occur when buying or selling an investment. For example, there are brokerage fees for buying and selling shares of stock inside an IRA. There may be a sales commission for buying an IRA annuity.

How you pay for IRA fees depends on the type of fee and what your IRA custodian will allow. The choices would be to either have the fee deducted from your IRA’s balance or pay the fees with non-IRA funds.

For administrative fees, you have to check if your IRA custodian gives you a choice on how to pay the fees. If the fee is deducted from your IRA balance (which is very common), it is not considered a distribution from your IRA, and thus isn’t taxable to you. Another option might be to pay the administrative fee yourself, from non-IRA funds, sometimes referred to as paying the fees “out-of-pocket.” There’s a potential advantage of paying the fees out-of-pocket because they might be tax deductible by you as an itemized deduction if your total itemized deductions are larger than 2% of your adjusted gross income. Mention it to your tax preparer when you have your taxes done to see if you qualify for a tax deduction.

With sales commissions though, you don’t have a choice. Sales or brokerage commissions have to be deducted from your IRA balance and cannot be paid out-of-pocket or reimbursed to the IRA.
 

Receive Ed Slott and Company Articles Straight to Your Inbox!
Enter your email address:

Delivered by FeedBurner

 

Content Citation Guidelines

Below is the required verbiage that must be added to any re-branded piece from Ed Slott and Company, LLC or IRA Help, LLC. The verbiage must be used any time you take text from a piece and put it onto your own letterhead, within your newsletter, on your website, etc. Verbiage varies based on where you’re taking the content from.

Please be advised that prior to distributing re-branded content, you must send a proof to [email protected] for approval.

For white papers/other outflow pieces:

Copyright © [year of publication], [Ed Slott and Company, LLC or IRA Help, LLC – depending on what it says on the original piece] Reprinted with permission [Ed Slott and Company, LLC or IRA Help, LLC – depending on what it says on the original piece] takes no responsibility for the current accuracy of this information.

For charts:

Copyright © [year of publication], Ed Slott and Company, LLC Reprinted with permission Ed Slott and Company, LLC takes no responsibility for the current accuracy of this information.

For Slott Report articles:

Copyright © [year of article], Ed Slott and Company, LLC Reprinted from The Slott Report, [insert date of article], with permission. [Insert article URL] Ed Slott and Company, LLC takes no responsibility for the current accuracy of this article.

Please contact Matt Smith at [email protected] or (516) 536-8282 with any questions.