Roth IRA distribution
I have a client with a basis of $100,000 in his Roth IRA and a value of $12,000. He’d like to take a distribution of everything in the Roth IRA and claim the loss (its a miscellanous itemized deduction subject to the 2% AGI floord and subject to AMT). He would then like to rollover the $12,000 distribution within 60 days of distribution into another Roth IRA. Can he do both, or does the rollover prevent the deduction of the loss. I would think that if the loss is allowed, then the loss is reduced by the amount rolled over and his basis in the rollover account would be the $12,000. I’ve reviewed Pub 590, but it doesn’t seem to address these two situations together, just each separately. If anyone thinks it can be done, I would like a reference to authority. Thanks
Permalink Submitted by Alan Spross on Wed, 2008-10-22 20:10
A rollover of the Roth balance will eliminate the reporting of a full distribution on Form 8606, and therefore eliminate the deduction. You have not closed the IRA if you have an outstanding rollover in process.
Less clear is whether a taxpayer could distribute all his Roth IRA balance, then later in the year make a regular contribution or conversion, essentially opening a new Roth. I do not believe the IRS has ruled on that, but the taxpayer should be able to start a new Roth in the year following closure. If a new Roth is started after total closure, there is nothing that says that the original 5 year holding period must start over, but it would be nice to see a ruling on that issue as well.