Q: In a recent Q&A, I got the impression that sales commissions from moving out of a mutual fund are not of concern to the IRS. Aren't they deductible?
A.B., via e-mail
A: P.J. DiNuzzo, president of DiNuzzo Investment Advisors of Beaver, Pa., says sales commissions typically are handled as an intrinsic adjustment to the cost basis of your mutual fund. Fees paid to redeem fund shares are usually treated as a reduction in the sales/redemption price.
Investors can normally add purchase charges and fees to the cost of their fund shares, thus increasing their cost basis. Fees and charges paid to purchase or sell/redeem mutual fund shares are not deductible. Cost-basis calculations can be viewed as gross of all fees and expenses for purchases and net after fees and expenses for redemptions, Mr. DiNuzzo says.
Q: I am 67 and have $103,000 in an IRA and $93,000 in a Tax Sheltered Annuity. I have the tables ready, but must I draw from each account, or alternate, or just the required portion of the total?
B.R., Pacific City, Ore.
A: If you have more than one traditional IRA, New York-based certified planner James D. Hiles says that you must determine the required minimum distribution for each account. But you can total these minimum amounts and then take the total from any one or more of those IRAs.
The required minimums are contained in tables that the IRS publishes. These required minimum distributions apply once you reach age 70-1/2, when the government dictates that you take mandatory payouts each year.
If you fail to take at least the minimum withdrawal amount each year, you'll owe an ugly 50 percent penalty on the shortfall. Of course, Mr. Hiles says, you can always take out more than the minimum and pay the extra income taxes.
Q: What is the typical rate that a fee-only financial planner would charge?
A.D., via e-mail
A: Financial planning fees come in many shapes and sizes – by the hour, by the project, on a retainer basis, or based on assets under management, says Ellen Turf, executive director of the National Association of Personal Financial Advisors (NAPFA). The amount also varies by geography. Just like lawyers and accountants, a fee-only planner in San Francisco is likely to charge more than one in Scranton, Pa.
Having said that, she would guess a range of $180 to $350 per hour, though the amount also will vary by the complexity of your situation. If the planner charges based upon assets under management, it may start out at 1 percent but fall if you have a considerable amount of money.
Ms. Turf recommends that you interview planners – fee or commissioned – to see whether their expertise and interests extend to what you want to accomplish, and discuss fees they'll collect.
"This is part of your comfort level," she says of the necessity of building a level of trust with people who handle your money.
Planners typically advertise whether they charge fees or collect commissions on products they sell. For a list of fee-only planners who belong to NAPFA, check out its website: www.napfa.org.
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