How to Deduct Retirement Plan Expenses From Taxes

When you're trying to get the lowest possible tax payment, it's important to find every possible deduction. If you've recently had a retirement plan completed and incurred costs with that plan, you may have another tax deduction.

Instructions

Difficulty: Moderate

1. Find out what the fees entail. There are several types of fees charged by financial planners. They include initial planning fees, implementation fees, administration fees, monitoring fees, evaluation fees, replanning fees and switching fees.
2. Break down all fees to the categories above if they're global, or if they're all encompassing fees.
3. Remember, to the passive investor, people not doing it for a living, the initial planning fees and implementation fees aren't deductible.
4. Deduct the monitoring fees and administration fees in the year that they occur.
5. Take off evaluating, switching and re-planning fees only if they don't change the investment structure significantly. This means that if it goes from a rental cash flow to an investment portfolio.
6. Take the deduction only if the income from the investments will be taxed that year. Exempt income and income that is deferred (IRA) will not produce taxable income that year. The exception is the fee that may be charged on an annual basis for the purchase of individual stocks by monthly automatic deduction from a checking account.

Tips & Warnings

• Initial planning fees involve the creation of a financial plan. Implementation fees are the brokerage cost and other items the involve putting the plan in action. Monitoring fees are the annual costs to watch the funds and make certain they are in line with goals. Evaluation fees come into play when a client seeks a second opinion or wants the adviser to look over the portfolio created by someone else. Replanning fees are the costs of changing the goal, and switching fees the cost of changing investments.
• Always keep in mind that deductions are usually limited to maintenance and not the beginning of an account or investment. Like educational expenses, you cannot deduct the cost of going into a new field. The original draft and purchase expenses therefore will not be deductible.
• Always review with your tax preparer. Changes occur regularly in tax law.