Making Two IRA Rollovers in One Year Can Be Costly

Article Highlights:

 One Rollover per Year Rule

  • Exceptions
  • Tax Consequences
  • Disqualified Rollover
  • Early Withdrawal Penalty

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Understanding Tax-Deferred Investing

Article Highlights:

  • Income Deferral
  • Earnings Deferral
  • Individual Retirement Accounts
  • Retirement Accounts
  • Bank Savings
  • Short- and Long-Term Capital Gains
  • Education Savings Accounts
  • Health Savings Accounts

When you are attempting to save money for your children’s future education or your retirement, you may do so in a number of ways, including investing in the stock market, buying real estate for income and appreciation, or simply putting money away in education savings accounts or retirement plans.

Knowing how these various savings vehicles are taxed is important for choosing the ones best suited to your particular circumstances. Let’s begin by examining the tax nuances of IRA accounts.

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Kiddie Tax No Longer Based on Parents’ Tax Rate

Article Highlights:

  • Parents Attempting to Shift Income to Children
  • Kiddie Tax
  • Tax Reform Changes
  • Tax on Child’s Unearned Income
  • Tax on Child’s Earned Income

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Investment Deductions

So Long To The Tax Deduction For Investment Expenses

Under the new tax reform law, investment expenses are no longer deductible as a miscellaneous itemized deduction. This means, for example, that if you have an investment account and are paying fees to have it managed, those fees are no longer deductible. This also means IRA and other types of retirement account fees that are considered investment fees are no longer deductible.

This affects more than just the itemized deduction for investment expenses, as these fees are used in the computation of net investment income (NII). NII is investment income reduced by investment expenses. NII is used in other tax computations as well. Here are two examples, one that is taxpayer beneficial and one that is not:

Investment Interest Deduction – Taxpayers who itemize their deductions can take a deduction for interest paid on debts to acquire investments. However, that deduction is limited to the lesser of the interest expense or NII. The elimination of investment expenses in the determination of NII effectively makes NII larger and in turn allows for a larger investment interest deduction.

Surtax on Net Investment – The Affordable Care Act imposes a 3.8% surtax on NII for higher-income taxpayers. This surtax generally applies to taxpayers filing a joint return with an AGI in excess of $250,000, married filing separate taxpayers with an AGI in excess of $125,000 and other filers with an AGI in excess of $200,000.

Since the tax is based on the NII, not being able to deduct investment expenses in the computation of NII effectively makes the NII larger, and thus the amount subject to the surtax is larger.

In the past, many taxpayers, in an effort to help their IRA or other retirement plans grow, would pay the fees for those accounts out of separate funds and then deduct those fees as investment expenses. Now that investment expenses are no longer deductible, it may be appropriate to reconsider that approach.

If you have questions about how the loss of the deduction for investment expenses might impact your taxes, please give this office a call.


Isler Northwest LLC is a firm of certified public accountants and business advisors based in Portland, Oregon. Our local, regional, and global resources, our expertise, and our emphasis on innovative solutions and continuity create value for our clients. Our service goals at Isler NW is to earn our clients’ trust as their primary business and financial advisors.

Isler Northwest

(503) 224-5321

1300 SW 5th Avenue
Suite 2900
Portland, Oregon 97201