Paying IRA Investment Management Fees (2024)

FAQs

What is a reasonable IRA management fee? ›

Answer: A 1% fee is around industry average, but you could pay less. You need to ask yourself what type of value you're receiving for that fee. “Does the fee include ancillary services such as financial planning or tax preparation? Investment management, like any service, can be shopped around.

The Short Answer:

Currently, the majority of miscellaneous itemized deductions, such as IRA management fees, cannot be deducted on your personal tax return for 2023. Due to the Tax Cuts and Jobs Act (TCJA) that was enacted into law by Congress on December 22, 2017, other IRA management fees are not deductible.

Types of Investment Management Fees

Management fees, whether paid as a mutual fund expense ratio or a fee paid to a financial advisor, typically range from 0.01% to over 2%. Generally, the range in fee amount is due to management strategy.

IRA fees, whether they were deducted from your IRA balance or paid by you out-of-pocket, are not considered distributions and thus do not count towards your RMD. 2.

Most of my research has shown people saying about 1% is normal. Answer: From a regulatory perspective, it's usually prohibited to ever charge more than 2%, so it's common to see fees range from as low as 0.25% all the way up to 2%, says certified financial planner Taylor Jessee at Impact Financial.

A reasonable expense ratio for an actively managed portfolio is about 0.5% to 0.75%, while an expense ratio greater than 1.5% is typically considered high these days.

No, they aren't. At least not anymore. The Tax Cuts and Jobs Act (TCJA) of 2017 put an end to the deductibility of financial advisor fees, as well as a number of other itemized deductions. As of January 2018, these fees no longer contribute to reducing your tax bill.

Investment management and financial planning fees were tax deductible through tax year 2017. They fell into the category of miscellaneous itemized deductions, which were eliminated from the tax code by the Tax Cuts and Jobs Act (TCJA) effective tax year 2018.

Because investment advisory fees are Section 212 expenses, this also means that a retirement account's ongoing investment advisory fee can be paid directly from the account without being treated as a taxable distribution, under Treasury Regulation 1.404(a)-3(d).

While 1.5% is on the higher end for financial advisor services, if that's what it takes to get the returns you want then it's not overpaying, so to speak. Staying around 1% for your fee may be standard but it certainly isn't the high end. You need to decide what you're willing to pay for what you're receiving.

Are investment fees worth it? ›

Investment fees aren't all bad. They cover some important costs to help ensure that your investments are managed well. You just want to make sure you're getting good value from your investments without letting excessive fees cut into your returns. You should never invest in anything until you understand how it works.

Yes, you can have the asset management fees paid directly from your IRA account and it will not be taxable to you as a distribution. This is because advisory funds drawn from a retirement account are considered a tax-free withdrawal from the account.

In most cases we can recommend framing the issue this way: Your money has the most potential for growth if you take your entire minimum distribution at the end of each calendar year. However, personal budgeting may be easiest if you take your minimum distribution in 12 monthly portions.

‍Advisor (Management) Fees

The industry typically refers to this as an investment management fee and averages between 1-2% of assets (i.e. A $100,000 investment could cost you between $1,000 - $2,000 annually).