How to deduct mutual fund fees

Deduct your mutual fund fees

You’ll need funds that don’t include embedded “trailer” fees.

  4

by

  4

calculator_hires_322Fees you pay to an adviser to manage a non-registered investment account are tax-deductible. Unfortunately, if you’re a mutual fund investor, you can’t take advantage of this, because the fee paid to your adviser for helping you with your portfolio is buried in the fund’s management fee. On a typical fund with a 2.5% fee, 1.5% might go to the fund company, while the other 1% is a “trailer” paid to your adviser. There is a way around this, however. Scott Plaskett says you should ask whether your adviser can arrange to use a different class of mutual funds that does not include this embedded fee. Here’s how it could work:

  1. Ask your adviser to switch you to “F-series” mutual funds, which do not include payments to advisers. Instead of having 2.5% deducted from your returns, the fee is reduced to 1.5%.
  2. Your adviser’s 1% compensation is then charged to your account directly, so he or she gets paid the same.
  3. However, now you can write off the 1% as an advisory or investment counselling fee. On a $100,000 non-registered portfolio, you’ll reduce your taxable income by $1,000 every year, saving you $400 if you’re in the 40% tax bracket.

Comments are closed.