Roth Ira contributions after withdrawal and collecting for losses

[Guest gzwick04]

Am new to this forum so please bare with me if the explanation isn't 100 percent clear...I had put in $9,000 into my Roth Ira before the 2003 tax year and put $1,000 in for 2003(making $10,000 total). I sold and got about $7,000. I believe I'm correct that there isn't a penalty because I received less than I've contributed. Is this correct? Also, I believe I can claim the $3,000 in losses also but don't understand the 2 percent agi max that I just read on another message. I'm also not sure where I would claim this on the tax form.... Last, since I only contributed $1,000 for 2003(even though I sold it) can I still contribute the remaming $2,000 by opening a new Roth or can I contribute the whole $3,000 or nothing? Thanks for any help anyone can give me..

[Mary Kay Foss]

When you close out a Roth IRA and receive less cash than you invested, you report the loss on Schedule A in the section for miscellaneous deductions subject to the 2% limitation.

You should be able to contribute $2,000 to a new Roth account before 4/15/2004 for the 2003 tax year.

[Guest gzwick04]

Thank you for your help. Am I correct that there is no penalty for withdrawing early because I received less than I put in? Thank you .

[JAMES PATRICK]

If he adds a contribution for 2003 to the account has he really "closed" the Roth IRA which gives him the ability to take the loss?

[Guest gzwick04]

My Roth was with Janus and I'm going to open a new account (new Roth)withVanguard to use the remaining $2,000 I'm allowed for 2003. Am I still allowed to take the loss by doing that or do I have to wait to contribute until 2004?

[JAMES PATRICK]

It does not matter if you open an account with a new custodian. To take a loss on a Roth you must close out ALL your Roth accounts. So if you make a contribution to your 2003 Roth (even though it is 2004) you have not closed all your Roth accounts, and therefore should not be able to take the loss.

I believe you should only contribute to a 2004 Roth.

[Guest gzwick04]

Thank you for your help. I will not contribute for 2003 and will begin in 2004 so I can take the loss. Am I correct that there is no penalty because I contributed more than I took out?

[JAMES PATRICK]

I am assuming all the $9,000 was from contributions so there would be no penalty.

[Guest gzwick04]

I am doing my taxes on TaxCut. When I claim my losses for the Roth(taking out less than I put in), is it under the category of "certain losses" in the miscellaneous section(after the 2 % agi). I want to make sure I put it in the right section. Thanks.

[ElGuapo]

Line 22 "Other expenses" on Schedule A. On the description line call it "Loss incurred from total distribution of all Roth IRAs."

Keep in mind this is a somewhat limited deduction because of the 2% of AGI. With your scenario of a total loss of about $3,000, if your AGI (1040 line 35) is $50,000 (x 2% = $1,000), you can only deduct the remaining $2,000. If your AGI is $150,000 your entire deduction is wiped out. Of course, TaxCut will help you determine whether the standard deduction is better in your case. If so, go ahead and contribute to the Vanguard fund for 2003.

[Guest gzwick04]

Thanks for your help. My wife and I actually both have $3,000 in losses so I assume it makes sense to take the loss and only contribute for 2004. We each put $1,000 in the fund in 2003 before selling it. Am I correct that the $1,000 for each of us gets added to the basis and I put the total amount contributed up to $10,000? Thank you.