- Funds kept in a Roth IRA are not subject to taxation. This means the money grows without worrying about capital gains, capital losses or even income taxes. It is irrelevant what type of investment you have, how many transactions there are and what the gains or losses are. As long as the money remains in the account, there are no taxable events, increasing or decreasing tax liabilities.
- When you take distributions from a Roth IRA and money remains in the account, no 1099-R is generated; it's not a taxable event. Taking such distributions won't allow you deductions, even if the IRA value has decreased. If you liquidate all your Roth IRAs at a loss, however, the IRS allows a miscellaneous itemized deduction.
- Realizing the loss requires distributing the total value of all your Roth IRAs for a value less than all contributions made into them. Claim the loss through miscellaneous deductions on Schedule A of personal income tax return, Form 1040. Schedule A has a 2 percent floor for all miscellaneous deductions taken. The floor takes 2 percent of your adjusted gross income and then reduces the deductible loss value.
- Assume you have made $5,000 in contributions for five years into Roth IRAs for a total of $25,000 and now want to liquidate all your Roth IRAs. There are no penalties if you are over 59 1/2 and have owned the Roth IRAs for at least five years. If the balance of your Roth IRAs is only $22,000, there is a $3,000 loss on your $25,000 contributions. You have to calculate the floor, however, which is 2 percent of your adjusted gross income. Assuming your income is $50,000, the floor is $1,000. If you have no other miscellaneous deductions, this requirement reduces your deductible loss on your Roth accounts by $1,000 to $2,000.
Losses Within the IRA
Taking Money Out
Realizing IRA Losses
Example
SHARE
