IRA Losses realized

[Possi]

My client has closed his Traditional IRAs and has carried a basis on the 8606.
The closing value is $1100 LESS than his basis.
Here is the question:
For purposes of taking the loss on the Sch A, he must close "all" of his traditional IRAs.
Is his TSP considered an IRA for this purpose?

His note to me:
"It looks like my TSP is comprised of both traditional and Roth (contributions by me are to the Roth in 12 AA, and I believe the Employer contribution is the Traditional portion shown on my TSP end year statement); I checked to see if my box 13 was checked on my w2 and it is..."

[mastertaxguy]

IRA Basis

Is this the same taxpayer about which you posted a similar question in 2012?

[Possi]

Um, no...

Is this the same taxpayer about which you posted a similar question in 2012?

Does that matter?

[mastertaxguy]

My client has closed his Traditional IRAs and has carried a basis on the 8606.
The closing value is $1100 LESS than his basis.
Here is the question:
For purposes of taking the loss on the Sch A, he must close "all" of his traditional IRAs.
Is his TSP considered an IRA for this purpose?

His note to me:
"It looks like my TSP is comprised of both traditional and Roth (contributions by me are to the Roth in 12 AA, and I believe the Employer contribution is the Traditional portion shown on my TSP end year statement); I checked to see if my box 13 was checked on my w2 and it is..."

1. TTB pp. 4-28, right column near top of page, as a section on losses on Traditional or Roth IRA's. The liquidation requirement does not require traditional, and Roth, IRA's to be combined.
2. Your scenario refers to a TSP which, without further explanation, to me refers to a postal service employee contributory deferred comp program. The ROTH aspects of that are NOT an IRA of any type as long as there is no rollover from the TSP to an individual IRA.
3. As you present you facts, to me I would treat the traditional IRA separate of any ROTH IRA's, but your facts do not present a ROTH IRA. The "ROTH TSP" is not an IRA.
4. You state the TP closed his "traditional IRAs'"[plural] so it appears to me that the TP has a deductible Schedule A loss, subject to 2%. (See IRS Pub 529, pp. 11).
5. Your fact scenario does not state the TP 'rollover' his TSP Roth IRA to an individual Roth IRA.

[Possi]

Tsp

The TSP is a Thrift Savings Account.
He is concerned that within the TSP, there might be an account that qualifies as a traditional IRA, therefore, he is afraid for the purpose of liquidating "all" traditional IRAs, allowing the loss realization, this might dis-qualify his ability to take the loss.
I'm sorry if this sounds confusing. It is hard to articulate the details sometimes.
So, I know the rules for taking the loss.
I need to know if the TSP would disqualify the ability to take the loss.
IMO, I do NOT think it would disqualify him from taking the loss because a TSP is not an IRA... his concern, once again, is that WITHIN that TSP, there is a ghost of a traditional IRA that, of course, is not being liquidated.
Still confused? It's nuts, I know.

[Roland Slugg]

Hello Possi. A TSP is a "Thrift Savings Plan" and is a defined contribution plan for federal civil service employees and members of the military. It is NOT an IRA. So if your client withdraws all the funds from his traditional IRA, he can deduct (as an itemized deduction on Schedule A) his excess basis in that final year. His IRA includes his SEP-IRA, if applicable, but not his Roth IRA. The deduction goes on Schedule A, line 28, as it is not subject to the 2% haircut. (See correction below.)

Your client's belief that his TSP contains some of his IRA funds is probably a misunderstanding on his part. A TSP is funded by payroll deductions by the employee plus an employer match. It would be nearly impossible to commingle TSP funds with IRA funds. Nevertheless, you may wish to ask him about this to make sure he hasn't somehow managed to combine them.

P.S. I agree with your reply to an earlier post: "Does that matter?"

Correction: A loss on an IRA is subject to the 2% floor.

[Possi]

Thanks!

That is what I thought. My client is an FBI agent, and we work very closely on his tax return. Every. Single. Line.
I believed that it would be deductible, and it is a $275 question, so I had the opportunity to earn my fee with this one!
I missed the fact that it was not subj to 2%, so thanks too, for that!!
I'll carry on now. Thanks for the clarification.

[EdCEA]

The deduction is subject to 2%

The deduction is subject to the 2% AGI limitation. See IRS Pub. 590-B page 19. Perhaps your client rolled over the taxable portion of his IRA to the TSP to isolate his basis. If so, it is no longer an IRA, although it may be accounted for separately within the TSP.

Ed C.

[RitaB]

Hey, now

"Last edited by Possi; Today at 12:34 PM. Reason: Too many commas. Don't want to get Rita B in a tizzy! "

Hey, now, a good tizzy can change your life.

[Possi]

Yes, it can!

I thought you'd appreciate that, RitaB!

2% floor. I looked it up. Got it. Thanks! That's what I thought, and I should have checked it for myself.

I really appreciate not working alone, but having my virtual office here!