If I close a Roth IRA with a loss, how do I report it?

[Guest Al Walker]

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?

[Guest miller]

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.

[BPickerCPA]

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.

[John G]

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.

[Guest Al Walker]

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.

[John G]

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.

[Guest mcdonnell]

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

[Mary Kay Foss]

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.