Speculating in my Roth and got burned

I didn't do my research and speculated in a company in my ROTH IRA.

The company is about to go bankrupt. If I'm able to sell the stock before it goes completely belly up is the money deductible on taxes?

I guess what I need to know is what happens when you sell for a loss in a ROTH?

The bottom line is that it is an IRA - as such, no loss write offs available.

The above response is not completely accurate.

Within an IRA (Roth or regular) there is no distinction between loss vs gain, short term vs long term, or even frequent turnover or hold forever. You can not offset taxable gains/income on your federal return with "tax losses" within your IRA. The tax consequences primarily occur in two ways: (1) you start taking normal distributions, or (2) you have very unusual circumstances and close ALL of you IRAs. See a Motley Fool article on this option at: http://www.fool.com/taxes/2002/taxes020222.htm

Under #1, there is only a tax consequence if the account is a standard or regular IRA, there are no tax consequences to normal retirement distributions of a Roth. So, your losses only reduce the total assets and therefore you are likely to pay lower taxes on the distributions... albeit many years in the future. You may have the option to claim a loss under #2, but few will qualify, find it worthwhile or want to close all their IRAs. The rules governing #2 have been discussed by Barry Picker and others before on this message board. Here is a cut and paste from a prior post:

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 (you have HUGE losses all in one IRA account for example), run it by a knowledgeable accountant or tax specialist.

Sidebar: there are also no special reporting requirements for either IRA accounts related to trades. Just keep the records you need to monitor your investments. No schedule D for IRA transactions.

I sure hope that you will ponder the investment decisions you are making. IRA investing is not equivalent to going to the track and betting on the ponies. You don't need to find 50% or 100% annual gains to be successful. Grinding out a 10 or 11% average annual return will often allow you to reach your goals. If you plunked most of your assets down on just one investment then you are not diversifying and increasing your risk. Hopefully, you have learned some valuable lessons with for the "tuition" that you have paid.

Thank you very much for the input. It was a small amount but I have definitely learned my lesson. Fortunately my main retirement savings is in a well diversified 401K plan.