management from designated 401k a taxable distribution?

Home Fairmark Forum Retirement Savings and Benefits management from designated 401k a taxable distribution?

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  • #3593
    Themistocles
    Participant

    If an investment advisor’s fee (at a brokerage house) is taken directly from the designated 401k a taxable distribution? If the fee was taken by mistake from the 401k when the client had specified that fees should be taken from an after-tax account, can the advisor correct the error by reimbursing the fee into the 401k? If so, is that reimbursement a crontribution subject to contribution limits?

    Thanks in advance. A friend of mine is pretty annoyed with her investment advisor/broker at a big brokerage house. I assume that if the client herself were to replenish the account for the fee amount that would be a contribution subject to contribution limits. Is that correct?

    #3595
    Alan S.
    Participant

    There are several issues related to advisor access to accounts that are not under active management, but assuming that a free was billed to a 401k, it would not be a taxable distribution, and could conceivably be reversed with the cooperation of the plan without it being treated as a contribution. Is this a solo K?

    Since such fees billed to the participant can no longer be deducted, typically they are better off billed directly (if possible) and paid from pre tax funds. Why is the friend annoyed about the source of payment?

    #3597
    Themistocles
    Participant

    Yes, the accounnt is a solo 401k, something called a Non-Prototype account. She is annoyed because they ignored her instructions to take the fee from the after-tax account.

    Thanks a lot for your helpful response.

    #4026
    neurodoc1@gmail.com
    Participant

    At Fidelity, I believe a “non-prototype plan” is simple on for which they do little more than play a “passive role” and allow you to invest your money using their brokerage services and/or buy their products. Thus, if you have a solo 401(k) and serve as your own trustee, you won’t have to them to ask “mother may I” questions. For example, may I buy and hold this asset, which the IRS and/or DOL might or might not approve of if they ever looked at it; which might involve UBIT or UDFI, something Fidelity won’t go near, largely limiting you to choices from their menu of investment offerings.

    So “non-PP” means little except as it allows us to guess what your friend is using as their retirement vehicle.

    As for where fees come from, I imaging they don’t want retirement funds diminished except when obliged, e.g., RMDs.

    Do others agree here?

    #4027
    neurodoc1@gmail.com
    Participant

    correction: “simply one”

    [no edit option on this platform?]

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