401K losses, IRA losses

[Opti]

Are 401K or IRA losses ever tax deductible?

If so, how do you show or take the loss on your tax return?

Thanks!

[mwcpa]

generally, losses within a qualified retirement plan are NOT deductible.... you received a deduction when you made the contribution to the plan....

but, if you have a NON deductible or Roth IRA or Roth 401(k) it is possible that upon full liquidation that a loss may be available to you.

See IRS publication 550.... link www.irs.gov/publications/p590/index.html

from that publication...

"If you have a loss on your traditional IRA investment, you can recognize (include) the loss on your income tax return, but only when all the amounts in all your traditional IRA accounts have been distributed to you and the total distributions are less than your unrecovered basis, if any. Your basis is the total amount of the nondeductible contributions in your traditional IRAs. "

further

"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 IRAs."


In both cases
"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 to taxable income for purposes of calculating the alternative minimum tax. "

[Opti]

Thanks. So when your 401K loses more than the taxes you would have paid your SOL. Oh well, appreciate the answer!

[mwcpa]

optimist ?

not sure what you mean....

Make believe I put 5,000 in a regular 401(k) in 2011... I get a current tax deduction for 5,000.

In 10 years I pull out all the money when it's only worth 3,000.

I pay tax on 3,000 that I get..... I already got a tax deduction for 2011 and the benefit of tax deferral... you do not get 2 tax deductions (when you put it in and when you take it out)....

now, make believe that I had I put 5,000 in a Roth IRA today instead of the 401(k).... and assume I have no other Roth IRA accounts....

10 year later I liquid the entire account (never taking a penny from the account previously) and I pull out all the money when it's only worth 3,000.

I pay zero tax on the 3,000 and I get an itemized deduction for 2,000 (the loss).... the 3,000 is "return" of principal (to make it simple) and the 2,000 is an allowed loss since your basis in the Roth was 5,000.

But if I put in 5,000 into a Roth IRA, the account value goes up to 25,000 and then retreats to 20,000 I have lost nothing from a tax perspective, I just made less... you basis in the Roth is still 5,000 (so you did not lose on the initial investment).