We recently came across an article written by Michael Kitces, CFP, that discusses possible tax issues associated with AUM (asset under management) fees charged by financial planners. While the article does not raise any new issues, it does serve as a valuable reminder that our tax system is complex and why working with an experienced tax professional before making financial decisions is so important.
Mr. Kitces discussed that with the rise of comprehensive wealth management, it is increasingly common for clients to pay a single bundled AUM fee that covers not only deductible investment management services, but also non-deductible planning expenses. Technically, he says that those clients should probably only be deducting a portion of the AUM fee, not the entire amount — at least where the AUM fee covers a material amount of planning services. He notes that financial planning fees not specifically attributable to investment management or tax planning are non-deductible, and are treated as a personal non-tax deductible expense.
Mr. Kitces states that the issue is especially concerning when it comes to retirement accounts such as IRAs, where paying a personal financial planning fee with retirement assets could trigger [Read more…] about DO BROKER FEES CAUSE YOUR IRA TO BECOME IMMEDIATELY TAXABLE?