“Tax Planning Tips for 2000 and Beyond” ( JofA, Nov.99, page 10) recommends paying IRA fees from separate funds, rather than from the IRA. This is desirable only if the fee is deductible from taxable income and reduces the taxpayer’s tax liability. But, in many instances, because of the 2.5% reduction in miscellaneous itemized deductions or if deductions are not itemized or no tax is due, paying the IRA fee does not reduce taxes for the year and is wasted.
Charging IRA fees to the IRA generally reduces taxes, as the fees reduce taxable distributions later.
Paying the IRA fee from separate funds is but 3% better than having the IRA pay the fee. The future value of nondeductible fees paid with non-IRA funds is 34% greater than if the IRA paid the fees.
It is doubtful the taxpayer or the CPA will be able to notify the IRA custodian each year—just before the fee is charged—who is to pay the fee to save only 3% of a small fee. It’s better just to charge it all to the fund, except in the few cases where the taxpayer’s miscellaneous itemized deductions are almost always sufficient to reduce taxes.
Victor Trivett, CPA