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.
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