Regardless of whether the fees are deducted from your IRA balance or you pay the fees separately, the amount of the fees never adds to your basis in nondeductible traditional IRA contributions.
While paying traditional IRA fees with non-retirement funds will maximize the growth of your IRA, it also reduces your non-retirement savings of money on which you have already paid taxes. Having fees paid instead from your IRA balance will often maximize your overall savings by using pre-tax money to pay the fees. Using pre-tax money to pay the fees generally means that some money that would eventually go to taxes is instead paying part of your fees. Effectively, the federal and (most) state governments are subsidizing your fees when the fees are deducted from your traditional IRA balance. Having fess deducted from your traditional IRA balance is more beneficial to those with higher marginal tax rates and less beneficial to those with lower marginal tax rates.
