I opened a Roth IRA in February, 1999 with $4,000 (for 1998 & 1999). Due to bad investments my account balance is now at $1,000. I would think that I could close this account and show a short term loss of $3,000. If this is correct, how do I go about claiming it on my tax return?

You can't write it off as a loss because it is a qualified plan. On the flip side, you don't have to pay taxes when you make money.

If you close a Roth for less than your contributions, you CAN take the loss. According to the instructions, it's an itemized deduction subject to the 2% limitation.

I would suggest some long hard thought about your investment strategy. How did you loose 75% of your assets in less than one year? The overall market was up 15%, 20%, or more depending upon what index you use. Sounds more like gambling then investing.

If you are new to investing, or have a modest IRA amount, I would like to suggest you consider no load mutual funds. You will get a lot of diversification. You will give up the possibilities of "grand slams", but for most folks "bunting for singles" and "drawing a walk" will score plenty of runs over the long haul. Most of those million dollar IRA examples are based upon contributing every year and averaging about a 10% return. Its not very flashy in an internet crazed market, but it does create significant assets.

BPicker-
Are you refering to Sch A, line 22 for the itemized deduction? I am having a hard time decifering this in the instructions.

John G-
You were correct - it was more like gambling. My IRA's are doing quite well in mutuals, but I opened the Roth to play around with equities and learned some valuable lessons.

OK, you made some investment mistakes. We all do, but hopefully we learn from them.

You probably paid a lot more for college tuition then your first tuition payment on "Wall St". From my experience, no memory is more vivid than a bad investment idea. Good luck.

Al Walker, See instructions on page 29 of Pub 590.

I've been looking at old questions and came across this one. Pub 590 does say that the loss from an investment in an IRA is a misc deduction subject to 2% limitation.

IRS Notice 89-25 (1989-1 CB 662) Q&A 7 indicates that a loss is deductible. The Northern Calif IRS district at a meeting with CPAs said that the such a loss would be ordinary and deducted from gross income.