The two big advantages of a Roth IRA are tax-deferred growth of your investments while they remain in the account, and tax-free distributions once your account becomes qualified. While you can't write off contributions to your Roth IRA, you might be able to deduct advisory fees you pay on that account.
Roth IRA Fees
You might get hit with a number of different fees for your Roth IRA. Your custodian or trustee might charge you a setup fee, a maintenance fee, transaction fees when you buy or sell investments, transfer fees, withdrawal fees and advisory fees. Some Roth IRA trustees charge a so-called "wrap fee" based on the size of your portfolio, which includes charges for investment advice, administrative costs, investment performance monitoring, overhead, trade execution, account maintenance, money management and custodial services.
As a general rule, what happens in your Roth IRA, stays in your Roth IRA. To put it another way, if you pay those fees out of funds held in your Roth IRA, you can't take a tax deduction for them. If those fees are billed separately and you pay them with funds out of a separate, taxable account, you can typically deduct them.
You'll have to itemize your deductions to claim your Roth IRA advisory fees. You can include your Roth IRA fees that are billed and paid separately with your other expenses on Line 23 of Schedule A. The Internal Revenue Service considers these fees to be part of your miscellaneous expenses, which are subject to the 2-percent rule: You can only deduct the amount of your combined unreimbursed employee expenses, tax-preparation fees and other expenses if they exceed 2 percent of your adjusted gross income.
You usually have the option of itemizing your deductions or claiming the standard deduction. Depending on your income or other factors, itemizing your deductions might not always be your best bet, even if it allows you to deduct your Roth IRA advisory fees. The IRS recommends figuring your taxes using both methods, then filing your federal income tax return using the method that results in the lowest tax obligation.
Mike Parker is a full-time writer, publisher and independent businessman. His background includes a career as an investments broker with such NYSE member firms as Edward Jones & Company, AG Edwards & Sons and Dean Witter. He helped launch DiscoverCard as one of the company's first merchant sales reps.