Backing Out 2008 Roth Contributions
I have a client with income of 180k for 2008. They made contributions of $3600 to a Roth IRA and have a total Roth balance of $7000. Can I take a loss on the amount that the contributions went down or do I have to back out the entire $3600?
Permalink Submitted by Alan Spross on Tue, 2009-03-24 20:20
The only way the client could take a misc itemized deduction for losses in his Roth would be to close out all his Roth accounts. While that could include the correction of the excess contribution done in 2009, the deduction would also apply to 2009, not 2008.
In correcting the 3,600 excess contribution, the IRA custodian will apply an earnings calculation to the entire account that held the contribution. The allocated loss would reduce the amount that is actually returned. While it would not help the tax bill, if the client was concerned about the total IRA balance he had, he could take the amount returned from the Roth contribution, add enough to it to make a max non deductible TIRA contribution and file an 8606, and then convert part of all of the TIRA to a Roth next year when there are no income limits for conversions.