How to close a worthless Roth IRA?

[Guest ffrreedd]

I put 2,000 dollars in a roth ira with brownco years ago. browco is closing up shop and getting absorbed by etrade. I don't want to do business with etrade. I pissed away the 2,000 on risky internet stocks during the boom. It is now worth 3 bucks. My commission to sell the stock is more than it is worth. If I do sell the stock and close the account...what are my tax liabilities and/ or penalties since I am not 59 1/2?

Thanks

[Appleby]

No tax –no penalties. Taxes apply only to earnings. Penalties do not apply to contributions

Why sell the stock? Why not take an in-kind distribution instead?

[John G]

Thanks for an honest disclosure. Think of that $2,000 as tuition for an investing class.

You do not need to sell the stock. Etrade is likely to charge you $10 annual maintenance fee and your account will go to zero.

Writing off an IRA loss is complicated. As I am short of time this morning, I can't write it all out now. You can use the search engine to look up "tax loss" and find prior posts.

It surely hurts to flow off $2,000, but if you realize you must know more about what you are doing.... and perhaps use mutual funds for diversification... then the lesson may help you more than it now hurts.

[namealreadyinuse]

Can't you merge it into another Roth IRA and use the basis? If that is your only Roth IRA, it won't work, but it should if you have other Roth IRA money.

[Appleby]

To add to John’s comment about deducting the losses, see the links to IRS.gov ar http://www.google.com/search?hl=en&lr=&q=%...Investments+%22