Your recent column about moving an IRA didn't mention that in bank-to-bank transfers, the "losing" bank takes money directly out of the person's IRA for their "fee." It's not a free transfer. The IRA owner loses that money in any transfer, and loses the compounded interest on that money. Imagine how much money the owner will lose over a lifetime of bank-to-bank transfers of multiple IRAs. Does one have to report these fees as IRA withdrawals? If you don't itemize, is there anything you can do on your tax returns regarding the lost monies every year?
The fees charged by an IRA custodian (such as a bank, brokerage or mutual fund company) aren't taxed as withdrawals. They're investment expenses. Unfortunately, there's no longer an off-setting tax break for them.
The new federal tax law eliminated the miscellaneous itemized tax deduction for investment fees and expenses. (The same law made itemizing less attractive for most taxpayers by almost doubling the standard deduction to $12,000 (up from $6,350) for single taxpayers, and to $24,000 (up from $12,700) for married taxpayers filing jointly.
As you say, most banks charge a fee for transferring or terminating an IRA. Before doing so, you should always ask to see a fee schedule.
"When you shop for CD rates, consider the cost of moving your account," advises Ed Slott, a Rockville Centre tax accountant. "Chances are, a higher rate won't overcome the fee."
Alternatively, consider keeping your IRA at a mutual fund company instead of a bank. Mutual fund firms offer investments at many levels of risk and return, which lets you change the investments in your IRA without changing IRA custodians — and big fund companies like Fidelity and Vanguard include FDIC-insured CDs in their investment lineup.
The bottom line
IRA fees aren't taxable withdrawals.