I have a loss in my Roth IRA. Can I deduct it?

I have a loss in my Roth IRA. Can I deduct it?

There are two questions you need to ask: Do you have a loss, and is it deductible? This past year has seen the value of many retirement accounts, including Roth IRAs, decline. A decline in the value of securities in the account, absent a sale or abandonment of the securities in the account or their becoming worthless, is not a loss; the value of the securities can recover.

Assuming that securities within the account have been sold for less than the amount paid for them, then there is a loss. Now determine whether and to what extent the loss is deductible. You are permitted to deduct a loss in a Roth IRA, but only when all the amounts in all of your Roth IRAs have been distributed to you and the total distributions are less than your total contributions.

Assuming you can climb these big hurdles, losses from your Roth IRAs are then deductible only as miscellaneous itemized deductions. This means only amounts in excess of 2% of adjusted gross income (AGI) actually are deductible. Furthermore, any losses that are deducted as a miscellaneous itemized deduction are added back for purposes of calculating the alternative minimum tax (AMT). Thus, anyone subject to the AMT loses any tax benefit from Roth IRA losses.