Roth contribution removed with a loss

[Kram BergGold]

In 2007 client put $5,000 into a Roth. In 2008 he removed it (he was ineligbile to make a Roth contribution due to high income) and only got back $4,000 due to market losses. His 2008, 1099 R is coded P and J which means any income would be taxable in 2007. Does he get to claim a $1,000 loss in 2007 and if so where?

[Gene V]

In 2007 client put $5,000 into a Roth. In 2008 he removed it (he was ineligbile to make a Roth contribution due to high income) and only got back $4,000 due to market losses. His 2008, 1099 R is coded P and J which means any income would be taxable in 2007. Does he get to claim a $1,000 loss in 2007 and if so where?

This is the closest answer that I could fine--don't know if this applies in your case.

From Pub. 590 page 70
If you have a loss on your Roth IRA investment, you can
recognize the loss on your income tax return, but only
when all the amounts in all of your Roth IRA accounts have
been distributed to you and the total distributions are less
than your unrecovered basis.
Your basis is the total amount of contributions in your
Roth IRAs.
You claim the loss as a miscellaneous itemized deduc-
tion, subject to the 2%-of-adjusted-gross-income limit that
applies to certain miscellaneous itemized deductions on
Schedule A, Form 1040. Any such losses are added back
to taxable income for purposes of calculating the altern-
tive minimum tax.

[FEDUKE404]

Removal of Roth funds - pass the aspirin!

In 2007 client put $5,000 into a Roth. In 2008 he removed it (he was ineligbile to make a Roth contribution due to high income) and only got back $4,000 due to market losses. His 2008, 1099 R is coded P and J which means any income would be taxable in 2007. Does he get to claim a $1,000 loss in 2007 and if so where?

What taxable amount is shown on the 1099-R ?? My guess is zero.

As I understand it, the institution must calculate a "with" versus "without" scenario for every day the funds were actually in the account. (Something like monthly contributions can create a nightmare only handled by a computer.)

As Gene V stated, you really cannot claim an overall loss until ALL of the funds are removed. It sounds as if your client got trapped in a down market, and his "$5k piece of the pie" was only worth $4k upon withdrawal.

If there is no "taxable income" shown, I seriously doubt if there is any taxable event present. This does not eliminate the possible need to play around with some Form 8806 numbers if the facts warrant it. And, of course, the withdrawal numbers have to show up on Form 1040.

Also, I think the "P" and "J" coding would dump any taxable income into the prior (first) year, in theory necessitating an amended return. Another factor, which you did not address, is whether the funds were removed prior to tax filing time for calendar year 2007. The Form 1099-R may be coded differently dependent upon those circumstances.

GOOD LUCK!!

FE

[Kram BergGold]

Thanks FE

You are correct, the taxable amount is blank. Given this and the assumption/fact that the loss is not deductible I think I will pass on amending 2007.

[ChEAr$]

You are correct, the taxable amount is blank. Given this and the assumption/fact that the loss is not deductible I think I will pass on amending 2007.

Not so fast there.

If client has other ROTH accounts, then it is correct that no loss may be taken.

However if this were the only ROTH account and it is closed out, then there is a
recognized tax loss.

[FEDUKE404]

More info?

However if this were the only ROTH account and it is closed out, then there is a recognized tax loss.

Agreed, but I never saw any indication that the account was "closed out."

FE