GLP Accountants: Roth IRA Withdrawal Q: Can I claim capital loss as a tax deduction?

You cannot claim a capital loss because an IRA loses or accrues tax-free.

According to your age at withdrawal, there may or may not be penalties.

If you are under a certain age, if you withdraw, income taxes are due on the entire amount withdrawn.

How come you're asking such questions on a forum like this? Go google your questions, or else ask questions at the institution that is holding your account.

Cut and paste from Pub 590 (www.irs.gov):

Recognizing Losses on Traditional IRA Investments
If you have a loss on your traditional IRA investment, you can recognize (include) the loss on your income tax return, but only when all the amounts in all your traditional IRA accounts have been distributed to you and the total distributions are less than your unrecovered basis, if any.

Your basis is the total amount of the nondeductible contributions in your traditional IRAs.

You claim the loss as a miscellaneous itemized deduction, subject to the 2%-of-adjusted-gross-income limit that applies to certain miscellaneous itemized deductions on Schedule A, Form 1040. Any such losses are added back to taxable income for purposes of calculating the alternative minimum tax.

Example.

Bill King has made nondeductible contributions to a traditional IRA totaling $2,000, giving him a basis at the end of 2008 of $2,000. By the end of 2009, his IRA earns $400 in interest income. In that year, Bill receives a distribution of $600 ($500 basis + $100 interest), reducing the value of his IRA to $1,800 ($2,000 + $400 − $600) at year's end. Bill figures the taxable part of the distribution and his remaining basis on Form 8606 (illustrated).

In 2010, Bill's IRA has a loss of $500. At the end of that year, Bill's IRA balance is $1,300 ($1,800 − $500). Bill's remaining basis in his IRA is $1,500 ($2,000 − $500). Bill receives the $1,300 balance remaining in the IRA. He can claim a loss for 2010 of $200 (the $1,500 basis minus the $1,300 distribution of the IRA balance).

Yes, but that's a different animal from a Roth IRA.

I think that there's a loophole so that you can withdraw from a recently-funded Roth IRA that has lost value, and claim the loss as a tax deduction.

Yes, but that's a different animal from a Roth IRA.

I think that there's a loophole so that you can withdraw from a recently-funded Roth IRA that has lost value, and claim the loss as a tax deduction.




Oops. It is a different animal. I focused on the IRA and lost the Roth. Unfortunately, looks like the same answer from the same pub:

Recognizing Losses on Investments
If you have a loss on your Roth IRA investment, you can recognize the loss on your income tax return, but only when all the amounts in all of your Roth IRA accounts have been distributed to you and the total distributions are less than your unrecovered basis.

Your basis is the total amount of contributions in your Roth IRAs.

You claim the loss as a miscellaneous itemized deduction, subject to the 2%-of-adjusted-gross-income limit that applies to certain miscellaneous itemized deductions on Schedule A, Form 1040. Any such losses are added back to taxable income for purposes of calculating the alternative minimum tax.

More from same pub (590):

What Are Qualified Distributions?
A qualified distribution is any payment or distribution from your Roth IRA that meets the following requirements.

It is made after the 5-year period beginning with the first taxable year for which a contribution was made to a Roth IRA set up for your benefit, and

The payment or distribution is:

Made on or after the date you reach age 59½,

Made because you are disabled,

Made to a beneficiary or to your estate after your death, or

One that meets the requirements listed under First home under Exceptions in chapter 1 (up to a $10,000 lifetime limit).




Please click here for the text description of the image.
Is Roth Distributions a Qualified Distribution?



Additional Tax on Early Distributions
If you receive a distribution that is not a qualified distribution, you may have to pay the 10% additional tax on early distributions as explained in the following paragraphs.

Distributions of conversion and certain rollover contributions within 5-year period. If, within the 5-year period starting with the first day of your tax year in which you convert an amount from a traditional IRA or rollover an amount from a qualified retirement plan to a Roth IRA, you take a distribution from a Roth IRA, you may have to pay the 10% additional tax on early distributions. You generally must pay the 10% additional tax on any amount attributable to the part of the amount converted or rolled over (the conversion or rollover contribution) that you had to include in income. A separate 5-year period applies to each conversion and rollover. See Ordering Rules for Distributions , later, to determine the amount, if any, of the distribution that is attributable to the part of the conversion or rollover contribution that you had to include in income.

The 5-year period used for determining whether the 10% early distribution tax applies to a distribution from a conversion or rollover contribution is separately determined for each conversion and rollover, and is not necessarily the same as the 5-year period used for determining whether a distribution is a qualified distribution. See What Are Qualified Distributions, earlier.

For example, if a calendar-year taxpayer makes a conversion contribution on February 25, 2009, and makes a regular contribution for 2008 on the same date, the 5-year period for the conversion begins January 1, 2009, while the 5-year period for the regular contribution begins on January 1, 2008.

Unless one of the exceptions listed later applies, you must pay the additional tax on the portion of the distribution attributable to the part of the conversion or rollover contribution that you had to include in income because of the conversion or rollover.

You must pay the 10% additional tax in the year of the distribution, even if you had included the conversion or rollover contribution in an earlier year. You also must pay the additional tax on any portion of the distribution attributable to earnings on contributions.

Other early distributions. Unless one of the exceptions listed below applies, you must pay the 10% additional tax on the taxable part of any distributions that are not qualified distributions.

Exceptions. You may not have to pay the 10% additional tax in the following situations.
You have reached age 59½.

You are disabled.

You are the beneficiary of a deceased IRA owner.

You use the distribution to pay certain qualified first-time homebuyer amounts.

The distributions are part of a series of substantially equal payments.

You have significant unreimbursed medical expenses.

You are paying medical insurance premiums after losing your job.

The distributions are not more than your qualified higher education expenses.

The distribution is due to an IRS levy of the qualified plan.

The distribution is a qualified reservist distribution.

The distribution is a qualified disaster recovery assistance distribution.

The distribution is a qualified recovery assistance distribution.

Looks like they never considered the possibility of a loss.

Here's a link, maybe you can find something: [link to www.irs.gov]

IRAs are a terribly complicated issue, I would seek help somewhere else.