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by AARP Tax-Aide, AARP, February 2008
Q: Regarding a miscellaneous deduction for a financial adviser’s fee, subject to the 2-percent rule: For required distributions from a traditional IRA (and therefore taxable income), can I deduct that portion of my financial adviser’s fee that corresponds to the percent of the IRA that I withdraw? Suppose I have $100,000 in a traditional IRA, and the required withdrawal is 4 percent (or $4,000), and I pay taxes on that amount. I’m also charged 2.5 percent (or $2,500) by a financial adviser to manage the IRA account. So, can 4 percent of that fee (of $100) be deducted under miscellaneous deductions subject to the 2-percent rule?
A: You can deduct the entire management fee (in your example, $2,500) if you paid it as a miscellaneous deduction (Schedule A, line 23) subject to a floor of 2 percent of your adjusted-gross income.
But if the fee is charged to your IRA account, you may not deduct it. This is because the fee has the effect of reducing your taxable income, since it reduces the value of your IRA, and, therefore, of your required minimum distribution.
These questions are actual inquiries submitted by taxpayers to our AARP Tax-Aide Program. The AARP Tax-Aide Program is a volunteer-run, free tax-preparation and assistance program offered to low- and middle-income taxpayers with special attention to those age 60 and older. Our volunteers are trained and IRS-certified to understand individual federal-tax issues. Our volunteers provide tax assistance as a public service and cannot guarantee the accuracy of the information provided.
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