Roth Taxation

[austin3515]

OK, so the individual in question contributeds $4,500 of Roth before terminating. He now wants to withdraw the balance when it is worth just $3,000.

So I just want to make sure everyone agrees that he will not be able to deduct $1,500 of LOSSES on his 1040 - or would he? Seems unfair that he would only get taxed if it made money...

[Guest Eric.]

If you have a loss on your Roth IRA investment, you can recognize the loss on your income tax return, but only when all the amounts in all of your Roth IRA accounts have been distributed to you and the total distributions are less than your unrecovered basis. Your basis is the total amount of contributions in your Roth IRA(s). You claim the loss as a miscellaneous itemized deduction, subject to the 2%-of-adjusted-gross-income limit that applies to certain miscellaneous itemized deductions on Schedule A, Form 1040. Any such losses are added back whether or not they were qualified to taxable income for purposes of calculating the alternative minimum tax.