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Columns: Tax Talk
George Saenz, CPA   Expert: George Saenz, CPA
Tax Talk
Unused Roth IRA losses can't be carried over
Tax Talk

Itemize Roth IRA losses
 

Dear Tax Talk:
If I took a $30,000 loss on a Roth IRA account following full distribution while earning $20,000 annually, would I be required to take the full loss in that current tax year?
-- Ann

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Dear Ann,
You seem to be suffering disproportionately. If you have to take the full loss in one year, it will exceed your income and not give you any tax benefit. Because you invested the $30,000 in the Roth IRA after paying taxes, the least you could hope for is to offset that much income when you recognize the loss. Unfortunately, that is not the case.

Let's assume you invested $50,000 and it is now worth $20,000. If it wasn't an IRA but instead stock in a regular account, you could at least claim a $30,000 capital loss. Due to the $3,000 annual limit on overall capital losses, the total loss may not be deductible in the current year, but the balance would be available to be carried forward to future years, deductible to at least $3,000 a year.

However, the treatment is quite different when the investment is in an IRA. Under the IRS rules that apply to IRAs, you can't claim a loss on a Roth IRA until all the amounts in all your Roth IRAs have been distributed and your distributions are less than your original contributions. There is no provision for carrying over your unused losses.

You can claim the loss as a miscellaneous itemized deduction, subject to the 2 percent-of-adjusted-gross-income limit that applies to certain miscellaneous itemized deductions on Schedule A, Form 1040. The real kicker is that any such losses are added back to taxable income for purposes of calculating the alternative minimum tax, or AMT. However, at your level of income, you shouldn't have to worry about AMT.

Bankrate.com's corrections policy -- Posted: Oct. 5, 2007
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