IRAs and the DOL Fiduciary Rule

AuthorSeymour Goldberg
ProfessionSenior partner in the law firm of Goldberg & Goldberg, P.C., Woodbury, New York
Under the DOL fiduciary rule as of April 10, 2017, and thereafter an
IRA advisor who receives any compensation directly or indirectly for
recommendations made to an IRA holder will be subject to a prohib-
ited transaction excise tax. This prohibited transaction rule also applies
if the IRA advisor makes a recommendation with respect to rollovers,
transfers, or distributions from an IRA, including in what amount, in
what form, and to what destination the rollover, transfer, or distribution
should be made.
The prohibited transaction excise tax is generally equal to 15% of
the amount involved in the transaction. This is based on the amount of
direct and indirect compensation received by the IRA advisor. In addi-
tion, there is no statute of limitation that applies to the assertion of the
excise tax by the IRS unless a Form 5330 is filed with the IRS and the
excise tax is paid.
In order to avoid this excise tax liability, the IRA advisor’s firm must
enter into a contract with the IRA holder that satisfies a DOL class ex-
emption called the “Best Interest Contract Exemption.” It is a detailed
agreement that is designed to protect the IRA holder and permits the
IRA advisor to receive reasonable compensation. The agreement em-
phasizes that the IRA advisor will act only in the best interest of the IRA

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