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Are IRA Custodian Fees Tax Deductible?

Are IRA fees tax deductible?

What are IRA Custodian Fees?

If you have an IRA, you may see IRA custodial fees. Essentially, an IRA custodial fee is an administrative fee you pay to the IRA custodian. This fee keeps your retirement account open. However, such fees are less common among Self-Directed IRAs. Additionally, if you have a Self-Directed IRA, your custodial fees may be tax-deductible.

Are your Self-Directed IRA Custodial Fees Tax-Deductible?

The Tax Cuts and Jobs Act of 2017 nearly doubled the standard deduction and eliminated or restricted many itemized deductions in 2018 through 2025.  Accordingly, the ability to generate an itemized tax deduction for the payment of IRA fees is no longer available in 2024.

The IRA Financial Solution

IRA Financial understands that because Self-Directed IRA fees are no longer tax deductible, making sure our self-directed IRA clients are not overpaying for their annual Self-directed IRA custodian fees.  To this end, IRA Financial has been fixated on making sure our Self-directed IRA fees are as low as possible and 100% flat.

IRA Financial has flat annual self-directed IRA custodian fees.  We do not charge any asset valuation or transaction fees.  Whether you have $25,000 or $250,000, you will pay the same one-time low flat annual fee. We strongly believe that since the account is a “self-directed” account and is managed by you, IRA Financial should not receive more fees simply because you were a successful investor.  That seems almost unfair.  We are the ONLY self-directed retirement provider that does not charge any check or wire fees.

Custodial Fees For Your IRA

It is important to note that Self-Directed IRA Custodian fees are not considered part of the total IRA contribution for the year. On the other hand, IRS rules further provide that if you pay IRA administrative/management expenses directly from the IRA, this payment will not be considered a distribution from the IRA.

For example, let’s assume you contribute the maximum for someone under age 50 to a self-directed IRA In 2024, which is $7,000. Then, the IRA custodian deducts $125 from the account for quarterly custodial fees. The IRA custodian fee you pay will not be seen as a distribution. Additionally, it will not increase the IRA contribution to compensate for that amount.

Therefore, a self-directed IRA account owner has two choices:

  1. Pay self-directed IRA custodian fees with the money in a retirement account (this is subtracted directly from the account without tax consequences).
  2. Pay the self-directed IRA fee with outside/personal dollars, which is not subject to an itemized deduction.

Investment Management or Transaction Fees

The same predicament falls on a retirement account holder subject to investment management or transaction-related fees with their Self-directed IRA. The IRS in a private letter ruling affirmed that “wrap fee”-style arrangements, such as ongoing asset under management and investment advisory fees can be paid with outside taxable dollars or paid using IRA funds.

Real Estate & Investment Fees

In the case of a real estate or other investment transaction that a self-directed IRA invests in, the IRS prohibited transaction rules under Internal Revenue Code Section 4975 requiring the IRA to pay the fees associated with the IRA investment.  For example, real estate tax, property maintenance fees, or related service fees should always be paid using IRA funds.  The use of funds to pay fees or expenses associated with an IRA investment from the IRA owner of any “disqualified person” in this context is not permitted.  Pursuant to Internal Revenue Code Section 4975, a “disqualified person” is generally defined as the IRA holder and any of his or her lineal descendants and/or any entities controlled by such persons.  Note – siblings are not considered “disqualified persons.”

Paying Self-Directed IRA Fees Using IRA Funds vs Personal Funds

In general, one can pay Self-Directed IRA custodian fees and similar investment advisory fees from retirement accounts. The primary benefit to paying the IRA custodian fees and management fees from a retirement account is the ability to pay it with pre-tax dollars. By definition, the retirement account is pre-tax. In contrast, paying Self-Directed IRA fees with after-tax Roth funds is generally not the best option.  Overall, even though one is no longer able to get an itemized tax deduction for the payment of IRA fees, it still makes tax sense to generally pay for IRA fees using personal funds.  By paying Self-Directed IRA fees out of personal funds, you are preserving the tax deferral or tax-free benefits of the IRA account. This allows the IRA to maximize its ongoing tax-deferred growth.

In sum, it’s almost always preferable to use personal funds (non-retirement funds) to pay the IRA custodian fee/investment management fee for a Roth IRA. The belief is that it is always better to pay with after-tax dollars from a taxable account than using future-tax-free-growth dollars from the Roth IRA itself.

Get in Touch

Do you still have questions about IRA custodial fees and management fees with a Self-Directed IRA that we didn’t answer in this article? Please contact IRA Financial Group at 800-472-0646. You can also fill out the form to get in touch with an on-site IRA specialist.


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