Roth IRA Loss and Write Off

[TexasOffroad]

I was searching for info and found a topic on this message board that fits closely to my situation, so I'm posting to get more specific opinions about my next course of action.

My wife and I both have ROTH IRAs that suffered bad trades and fairly large losses on stock option trades. Each account had roughly $25,000 and each lost roughly $9,000. I am age 60 and my wife is age 53. We are currently unable to fund our ROTH IRA this year or for the next two years.

I would appreciate opinions on the positive or negative effects of the following:

The way I understand ROTH IRA rules, we can close the ROTH IRAs - move our $16,000 each into normal brokerage accounts - and take an income itemized tax deduction for the combined $18,000 in ROTH IRA losses.

Then we each would re-deposit our remaining $16,000 in funds into two new ROTH IRAs - spread over the next three years using the maximum allowances.

In the meantime, I would continue investing and trading this money in one of our normal trading accounts - and paying whatever capital gains apply.

So we would end up roughly right back where we are today, except that we can benefit from the one time tax write off for our losses. Is it worth the trade off?

Would that scenario sound like a reasonable time to use this kind of ROTH IRA cashout and restructure? Or is there another way to recapture any equity related to this kind of on-paper loss?

[Bird]

I think what you propose is do-able. I just looked it up and a few things to keep in mind are-

• you must close all Roth IRAs in order to claim a loss
• it's a miscellaneous deduction so you have to subtract 2% of your AGI to determine the deduction value (for all misc. deductions)

I like to keep things simple so it sounds like kind of a hassle to me. Depending on your tax bracket, it might be worth the trouble.