Losses Within a Roth IRA

Submitted by Mobey on Mon, 2016-03-07 17:10

A gentleman invested a significant portion of his Roth in a company that is likely to be deemed worthless. It is a non publicly traded company.

He’s wondering how he can get a potential tax benefit from the loss in the future if/when it’s deemed worthless.

Other than closing all Roths and deducting the difference between total contributions and total withdrawals as a misc itemized deduction, any other possibilities to capture that loss?

In essence he wonders if he withdrew the stock from the Roth and put it into his name, how much of the loss could he claim when/if it’s deemed worthless down the line, and how he documents the basis.



Submitted by Alan - IRA critic on Mon, 2016-03-07 17:44

  • DIstributing the entire Roth balance could help but that is dependent on many variables including the balance he has left on which he is forfeiting Roth benefits, how much his itemized deductions would be increased over the standard deduction, and his tax savings as a result. The net effect is that of a reversed conversion, a comparison of the up front tax benefit vs. the future loss of tax free growth and increased taxes down the road.
  • If the shares are distributed in kind, the IRA Custodian must place a value on them as reflected in the 1099R to be issued. The value reported on the 1099R divided by the # of shares determines the cost basis of those shares in the taxable brokerage account. But if the shares become worthless the cap loss will not include any of the loss incurred in the Roth, only that incurred after the distribution.

Submitted by Mobey on Mon, 2016-03-07 19:03

THANKS – pretty much what I came up with.

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