Can I deduce my Roth IRA loss in tax return?

My Roth IRA ($8000 contribution) has $2000 current stock value. I wonder if I can sell the stock and deduce my investment loss in my 2001 tax return? Thanks for any help.

If you are asking can you sell the asset within the Roth and write off the loss, the answer is no. There is no concept of capital gain/loss or either short/long gain inside either a standard IRA or Roth.

Barry Picker previously addressed another option for losses on 12-12-2000 on this message board and gave the following extract:

From Publication 590:

"Recognizing Losses on IRA Investments

If you have a loss on your traditional IRA investment, you can recognize 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% limit, on Schedule A, Form 1040." {this should apply to Roth and regular IRAs}

Note the key elements: you must withdraw ALL of your IRAs and even then you have the Schedule A restriction. AND you also have that 10% penalty for early withdrawal. You lose the tax shelter, incur a penalty and are limited in that loss you can write off. I just don't think many people will find this second approach attractive. If you think this might make sense, run it by a knowledgeable accountant or tax specialist.

It looks like you were making some very risky aggressive investments to turn 8k into 2k. I think you need to put more focus on understanding long term investing so your future investments will be profitable. Most people do not need to chase very high returns to accumulate a great Roth nest egg. You don't need to "beat" the market to be successful. A very broadly based index fund might be a better choice for you.

The 2001 version of Publication 590:

http://ftp.fedworld.gov/pub/irs-pdf/p590.pdf

The quoted section is on page 33.

Thanks Pax.

The key change in the 2001 language in Pub 590 is that all the standard IRAs are one cluster and all the Roths are a separate cluster. Kind of an odd policy if you ask me.

Of course, I believe in tax simplification which is right up there with the tooth fairy.

Take a look at this article

http://ira.mpower.com/commentary/feature/feature.xsp

Appleby,

Thanks for the reference site. In reading the article however there appears to be an error in regards to withdrawals from a Roth before the end of 5 years. The article states that EVEN THOSE OVER 59 1/2 must pay the 10% penalty if the W/D is made before the 5 year term of the Roth.

In the situation noted there would be NO EARNINGS because the individual is going to take a loss, so it is a non-qualified W/D but since the individual is over 59 1/2 the penalty DOES NOT apply.

Good catch. I will bring it to their attention immediately

This is a better article:

http://benefitslink.com/boards/index.php?showtopic=13826