Deducting Investment Fees
Investment management and financial planning fees were tax deductible through tax year 2017. They fell into the category of miscellaneous itemized deductions, and these deductions were eliminated from the tax code by the Tax Cuts and Jobs Act (TCJA) effective tax year 2018. These fees are still deductible for California purposes to the extent that they exceed 2% of your adjusted gross income.
You can pay investment management fees or financial planning fees that are structured as a percentage of assets directly out of the account that's being managed. It’s not considered to be a withdrawal from an IRA account when fees are paid this way. It's an investment expense, so you’re paying the fees with pre-tax dollars and therefore they are not deductible for federal or state purposes. However, if you pay these fees by personal check from an account other than your IRA, you can claim them as a miscellaneous itemized deduction for California purposes, but may not see much tax benefit. Therefore, it makes sense to pay fees directly out of traditional IRAs when possible because the funds held in a traditional IRA will be taxed one day. You’re avoiding paying income tax on that portion if you pay fees out of this type of account.