Roth IRA Write Off Loss
It is quite possible that if you have suffered a loss in your Roth IRA, you may be able to write it off. However, the rules for Roth IRA loss write off are quite tricky, and in the end you may not be able to deduct as much money as you thought. |
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With it comes to deducting, you can only deduct your losses from Roth IRA if you close all your Roth accounts and if total amount that you received is less that the basis. Basis is calculated as the total amount contributed plus any other funds that were converted into Roth and minus all the withdrawals.
When it comes to a Roth IRA loss write off, you cannot report your loss in the same way when you lose money from investments. For a taxable account, any investment losses are reported as capital losses and are deducted accordingly. However, a Roth IRA loss is an itemized miscellaneous deduction that should be reported on Schedule A of the income tax form. This means that to avail the write off, you would have to itemize the loss along with the other itemized miscellaneous deductions. However, the losses are only tax deductible if they are more than 2 percent of the adjusted gross income.
Let us see an example to write off losses of your Roth IRA. Assume that you have contributed $7,000 to your Roth IRAs. However, now those same accounts are worth $1,000. Suppose you close off all your account, you would be saddled with of $6,000. If you adjusted gross income for that particular year was $50,000, you can close your Roth IRAs and write off the $5,000 loss as the $1,000 remaining accounts is 2 percent of your adjusted gross income.
The above example shows that you can write off only losses that are more than 2 percent of the adjusted gross income. On the other hand, if you come under the alternative minimum tax bracket, then you cannot write off the Roth IRA as you will not be allowed to take deductions under the miscellaneous itemized category.
Although it is beneficial to write off the Roth IRA losses but you will not be able to allow your money to grow tax free in you Roth. Therefore, it does not make sense to close all the Roth IRAs that you have. However, if you have suffered huge losses, closing all the accounts could be beneficial. This way you can used the saved taxes to build your future retirement savings.
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