In a year in which an RMD is taken, can a proportion(RMD value/total value) of the asset based fees for the 401k be taken as an investment expense?

[xconniex]

Since the investment expense is being deducted for taxable income, shouldn't it be allowed as an investment expense on Schedule A, line 23?

[MinhT · Accepted solution]

If the asset-based fees are paid within your 401(k) account, then you cannot deduct any portion of it on your personal tax return as all earnings, losses and expenses in the 401(k) are tax-deferred.

[xconniex]

What if the account is a taxable account?  Can asset-based fees be a deductable investment expense on Schedule A?

[MinhT]

Fees charged om a taxable account are deductible as investment management fees in Schedule A - Itemized deductions. They are subject to the 2% of AGI threshold.

[xconniex]

For example, if Fidelity reports a 0.55% for net expense ratio and 0.4% management fee for FPURX, by multiplying those fees by assets held in FPURX, those are deductible investment fees to report on Schedule A?

[MinhT]

FPURX is a mutual fund and expenses are charged to the fund, not you. You cannot deduct these expenses. You can only deduct management fees charged to your account.

[maglib]

@xconniex when you say taxable account, are you meaning a roth 401k? The earnings in those accounts still grow tax free so not deductible only the original principal contribution was after tax.

A traditional IRA fees would be deductible only if you paid them outside the IRA. Why?  Because IRA's grow tax deferred, so upon distribution you will pay taxes on the income and principal. Again, you must pay them though from other sources. It's actually better to pay them with IRA funds as then those funds, you never pay taxes on since they are never distributed to you.

You can only deduct investment fees, custodial fees, trust administration fees, and other expenses you paid for managing your investments that produce taxable income.

The reason the FPURX fee is not deductible:  expense ratios are not included simply because they don't meet the criteria of an expense paid that produces taxable income. When you receive your income from the fund, the expense ratio is already deducted -- it's not a fee that you pay directly. In other words, if one of your funds has a 1% expense ratio and produces an 8% return on its investments this year, the value of your investment will only increase by 7%. You would only owe taxes on that 7% (if you sell), so the expense ratio wouldn't be deductible.

[macuser_22]

Retirement management fees are deductible if paid out of your pocket using other funds not connected to the retirement account.  If the fees are paid from the retirement account it simply lowers the taxable value of the account and are not otherwise deductible.

[xconniex]

If the taxable fund (not invested for retirement in a 401k or IRA, and not a Roth) is an ETF (for example VIG has an expense ratio of 0.08%), are the expenses tax deductible to the owner on schedule A?

[maglib]

no... same reason as why FPURX is not, because when you sell the ETF, you only get proceeds net of the fees. You never use taxable income to pay the fees. The stock valuation is valued inclusive of the embedded fees.