Roth IRA
I would like to get some info (options) from you regarding my problem. My wife and I invested 75K each (Roth IRA) in a hedge fund 2 years ago. It went bankrupt (ponzi scheme discovered June 2012 according to NFA).
1. Am I going to be able to write this loss off, if so how?
2. As this is after tax Roth IRA money, can it be replaced with personal funds or loans?
Thank you in advance for any info you can provide me. If tyou need any additional info, I will be happy to provide it to you.
— Lou
Permalink Submitted by Alan Spross on Mon, 2012-08-20 02:59
FIrst of all, if there is any chance of legal proceedings that restore some of your loss, the proceeds can be rolled back into your Roth IRA.
If not, you have a potential misc itemized deduction if ALL of your Roth IRAs are closed out after the investment is declared worthless. If you had your entire investment in this fund, your loss is the amount of your Roth contributions, whether regular or conversions. The misc deduction is reduced by 2% of your AGI. If you can apply this, do not make new Roth contributions until at least the following year after you take the deduction. If you both have other Roth balances, but they are low enough to warrant closing them out, it may work better to close out your Roth in a different year than your wife. Again, you must close out all your Roth IRA accounts if you have other accounts or a balance remains after this loss. It is not worth closing out the Roths unless the remaining balance is fairly small relative to the loss.
I don’t understand your second question regarding replacement. The only actual replacement would be a “restorative payment” as a result of legal proceeds against those responsible for the ponzi scheme. Otherwise, the only way to replace funds in your Roth is to make new Roth contributions or conversions from a pre tax retirement account.