Are 401k advisory fees tax deductible?

If the fees of a financial advisor or investment manager are deducted directly from an IRA or 401k, the fees are effectively paid with 100% of the money before taxes. Basically, they're deductible without even deducting them. IRA and 401k maintenance fees cannot be deducted at all if paid with the tax-deferred account. Instead, they would reduce the amount of the IRA or 401k, which would reduce the amount subject to tax when it is finally distributed.

Collecting tax losses can be particularly effective in minimizing the amount of taxes you must pay on investments. You might be tempted to pay these fees by check, with after-tax dollars, because it's easy, but there might be a better way if you have money in an IRA. This change in the tax code, along with others established in the law, is expected to remain in effect until 2025.In these scenarios, the decision represents compensation: the advantage of paying with external dollars is allowing the retirement account to accumulate and the advantage of paying with retirement dollars is to make the full payment before taxes. In the end, this means that for customers with very long time horizons (or where the fee is actually partially or fully deductible) it is better to pay with external dollars.

Since investment advice fees are Section 212 expenses, this also means that a retirement account's ongoing investment advice commission can be paid directly from the account without being treated as a taxable distribution, under Treasury Regulation 1,404 (a) -3 (d). Given the costs associated with investment advice, clients often want to maximize available tax benefits to help mitigate the cost. However, until now, the IRS has been somewhat lenient in allowing a combined fee that includes investment advice fees and some other “minimum” expenses (such as financial planning services) to remain valid; however, advisors should be careful when trying to bundle too many other charges and expenses into a single comprehensive investment advice commission, if the fee is to be paid from retirement accounts. First, if you invest in a 401 (k) or similar plan at your workplace, you get the benefit that those contributions are automatically deducted from your taxable income.

In fact, the IRS even allows investment advice fees to be deducted when they are paid on behalf of retirement accounts, such as IRAs and 401 (k) plans. Fortunately, the IRS does allow a tax deduction for certain investment-related expenses, and while the treatment isn't ideal (a miscellaneous itemized deduction subject to the minimum of 2% AGI and an adjustment of the AMT), something is better than nothing. However, in practice, investment advice fees are not usually fully deductible for clients, partly because of the minimum of 2% of the AGI applicable to various itemized deductions, but more commonly because it is an adjustment of the AMT and, consequently, most or all of the deduction is lost when clients become exposed to the AMT. You can hire an investment advisor who only pays fees and who uses low-cost index funds to create the portfolio instead of using actively managed funds.

You can go back and modify a tax return for three years from the date you filed it or for two years from the date you paid the resulting tax, whichever comes later. If you detail it in Schedule A, you can deduct the interest paid on any money you borrowed to buy taxable investments.