Taxable Investment Accounts

Traditional investment advisory fees, though, including ongoing AUM and wrap fees, generally are deductible as long as they are not directly attributable to the management of tax-exempt assets.

Retirement Accounts

The retirement account holder has a choice to pay investment advisory fees either directly or out of the retirement account. When drawn from out of the retirement account, the fees so drawn reduce the funds in the deferred fund without tax consequences.Alternatively, when the fees are paid directly (without recourse to the retirement account) the same can be claimed as part of the itemized deductions in the annual tax return. Such a deduction will benefit a reduced tax burden. Your accountant or tax advisor may be able to assist you suitably.

Taxable Accounts paying Retirement Account Fees

In contrast to the rules allowing either the taxable accounts or for retirement accounts to pay their own fees, it is not permissible to pay any expenses attributable to a taxable account (or other investments) from out of a retirement account because in the first place such expenses would not be “ordinary and necessary expenses of the retirement account.

Instead, a payment from a retirement account for the fees of other accounts would be treated as taxable distribution similar to withdrawals from the retirement account to pay any other personal bills and expenses being treated as a distribution. In addition such payments may also be subjected to potential early withdrawal penalties as well.

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