Deductibe Loss on IRA

[Barb]

Is there a way to take the loss on an IRA if all the money put in to it was Deductible or from a 401k that was Rolled over to an IRA?

From what I have read you have to have basis, which in this case I believe the basis to be $.00.

Just double checking with the experts before I give the wrong info to someone!

Thanks

[solomon]

Zero basis equals zero loss.

[Barb]

Re: IRA Loss

Thanks, that what I thought, but was hoping I was wrong.

A lot of people think they can deduct this because the Media hasn't told the whole story as usual!!!

[ON THE GO]

Mind Went Blank

Silly question... mind went blank. How do you calculate the basis.

[solomon]

Silly question... mind went blank. How do you calculate the basis.

Basis should be on Form 8606.

[Beth]

Deductibe Loss on IRA

If the money orginated from a deductible IRA or a 401k- how can the basis be zero??

[solomon]

If the money orginated from a deductible IRA or a 401k- how can the basis be zero??

There would have been already a tax benefit - no double dipping.

[Bees Knees]

If the money orginated from a deductible IRA or a 401k- how can the basis be zero??

You have basis in something that you have already paid tax on.

You have zero basis in something that you have not paid tax on yet.

Example #1: You earn $100 on a W-2. You pay tax on the $100 and have $80 left in cash. You spend the $80 buying stock. You later sell the stock for $20. You get to deduct the $60 you lost on the sale because you paid tax on that $60 way back when you earned it on the W-2.

Example #2: You earn $100 on a W-2 but defer $40 of it into a 401(k). The taxable portion of the W-2 earnings is $60, the portion that you did not put into the 401(k). You later cash in the 401(k) for $10 and pay tax on that $10. The $30 that you lost inside the 401(k) has zero basis and is not deductible, because you never paid tax on the $30 back when you earned it on the W-2.

[FEDUKE404]

No loss on withdrawal

If the money orginated from a deductible IRA or a 401k- how can the basis be zero??

Solomon (of course!) is correct. Most withdrawals from traditional IRA and 401(k) plans are fully taxable. You can't have a "loss" to show on Form 1040, even though the value of the underlying account can plummet. Some use the analogy of a "black box" - you put money in (deductible) and you take money out (income). Everything in-between is of no tax consequence. OK - I will hedge a bit since RMDs are related to account value.

Form 8606 exists for the somewhat unusual (and unwise?) situations where someone puts non-deductible funds into an IRA account. From that point onward all future withdrawals from the IRA account will be partly taxable and partly non-taxable, so as to avoid double taxation.

The form must be completed the first year such a "non-deductible" (could be for several reasons!) amount is placed into the IRA account. After that, it is mere number-crunching and book-keeping.

FE

[Beth]

Deductibe Loss on IRA

Thanks folk- I definately learned someting here! I do appreciate your sharing...

Beth