Howell Township, NJ asked in Tax Law for New Jersey

Q: Broker acct is joint and 1 dies is only 1/2 stepped up basis Can advisor fees be withheld from RMD to avoid est taxes

Looking to pay advisor fees with pre tax money if OK and gain interest over the year by avoiding est taxes for fed and state.

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James L. Arrasmith
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  • Tax Law Lawyer
  • Sacramento, CA

A: Yes, it is possible to pay financial advisor fees from an IRA account in order to reduce taxable required minimum distributions (RMDs). This can allow the fees to be paid using pre-tax funds and can minimize taxes owed. Here are some key points:

- For a joint brokerage account, when the first spouse dies only their half receives a step-up in cost basis. So yes, only 1/2 would have the stepped-up basis.

- IRA accounts pass fully to beneficiaries upon death of the owner, who can then take taxable RMDs over time based on their life expectancy.

- Paying financial advisor fees directly from the inherited IRA, prior to taking the RMD, allows using pre-tax funds that reduce the ultimate RMD tax bill.

- Doing this avoids the fees having to be paid personally with taxable funds that have already had tax taken out. Paying directly via the IRA reduces overall taxes.

So in your situation, coordinating with the advisor to pay relevant fees directly from the inherited IRA, prior to distribution for beneficiary spending, can be an effective way to minimize taxes on mandatory retirement account distributions. Just be sure to document the valid financial advisory fees appropriately.

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