By moving my brokerage account from Wells Fargo to TD Ameritrade, I earned a signup bonus from TD Ameritrade, but I also had to pay a $95 account closeout fee to Wells Fargo.
I could’ve left the minimum amount necessary to keep the Wells Fargo account open and free, but because the signup bonus more than offsets the closeout fee, I chose to streamline. I closed both my Wells Fargo brokerage account and the Wells Fargo PMA checking account which I hardly use.
Now, is the brokerage account closeout fee tax deductible?
Again, the answer is it depends.
If a brokerage fee is related to a specific purchase or sale, like a commission, it adds to the cost or subtracts from the sale. Although it isn’t explicitly tax deductible, it sort-of is because it reduces your gain or increases your loss.
A closeout fee isn’t related to a specific purchase or sale. In a taxable account, it’s theoretically tax deductible as an investment expense but that deduction goes into miscellaneous deductions, subject to a 2% of AGI floor. That means if you already have other miscellaneous deductions that exceed 2% of your AGI, this closeout fee will be tax deductible. If not, it won’t be.
I don’t know about you but I never have miscellaneous deductions that exceed 2% of my AGI. Maybe if you pay a large asset management fee to a financial advisor you would. I would say for practical purposes a brokerage account closeout fee for a regular taxable account is NOT tax deductible for most investors.
If the account is a traditional IRA and the closeout fee is taken from the account, it just means you will have less money than you otherwise will when you withdraw from the account after you retire. The closeout fee isn’t tax deductible in the current year but it sort-of is at a later time because less money to withdraw means less in taxes.
If the account is a Roth IRA and the closeout fee is taken from the account, you are out of luck again. You will just have less money in the account.
Except in a traditional IRA, a brokerage account closeout fee is basically not tax deductible. This applies to other non-transactional fees as well: account maintenance fees, wire fees, etc.
Paying taxes on the signup bonus but not being able to deduct the closeout fee reduces the value of the switch somewhat. In the end the switch is still well worth it to me.