Claiming a Loss in an IRA
A client made a contribution to their IRA in 2008 for $5,000, received a loss of $2,500, and proceeded to do a removal of that contribution. Now, in 2009 the same client makes the full $5,000 IRA contribution for 2008 (their filing deadline is 4/15/09). So far so good. Here’s the catch…
The client wants to claim a loss for the inital, and subsequently removed, contribution. Is this possible?
Permalink Submitted by Alan Spross on Wed, 2009-01-28 21:00
To claim a misc itemized deduction, a taxpayer must close all IRA accounts of a given type.
Assuming this WAS the only IRA, the IRS has not published a waiting period to take this deduction. However, it would be reasonable to think that a new account would at least have to wait until the following tax year, so that there would not be a year end balance. A contribution made for 2008 in 2009 is actually deemed to have been made in 2008, and a Form 5498 will be sent to the IRS showing an account balance as of the end of 2008. Accordingly, there is a good chance that the deduction would be at least questioned, if not disqualified. The following is from Sec 219 of the code:
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(3) Time when contributions deemed made
For purposes of this section, a taxpayer shall be deemed to have made a contribution to an individual retirement plan on the last day of the preceding taxable year if the contribution is made on account of such taxable year and is made not later than the time prescribed by law for filing the return for such taxable year (not including extensions thereof).
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