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    Traditional IRA Losses

    Client had an Traditional IRA that was funded by rollovers from two former employer's 401k plans.
    He then treated it as a "brokerage account" buying and selling capital assets.
    By 2017, he had lost most of the original rollover amount and decided to cash out the IRA in order to claim the losses on his tax return.
    He ASSUMED these loses would go against the capital gains he had outside of the Traditional IRA. (not happy when I said they would be on Schedule A subject to a 2% AGI hurdle, if allowed at all)
    He has completely cashed out and only had the one Traditional IRA.
    Is the difference between the rollover amounts that funded the Traditional IRA and the amount he recovered in the distribution of the IRA the "unrecoverd basis" of the Traditional IRA?
    (referring to page 4-28 of the Deluxe Edition of the Tax Book- Loss on Traditional IRA)
    Thank you for assistance with this clarification.

    #2
    Originally posted by Wing View Post
    Client had an Traditional IRA that was funded by rollovers from two former employer's 401k plans.
    [...]
    He has completely cashed out and only had the one Traditional IRA.
    Is the difference between the rollover amounts that funded the Traditional IRA and the amount he recovered in the distribution of the IRA the "unrecoverd basis" of the Traditional IRA?
    (referring to page 4-28 of the Deluxe Edition of the Tax Book- Loss on Traditional IRA)
    Thank you for assistance with this clarification.
    Welcome to the forum.

    Read the example on the TaxBook page you reference: "Ron does not have a deductible loss because total distributions from all traditional IRAs exceed his basis."

    Even worse than Ron, your client not only does not have any deductible loss, but whatever he took out of his IRA will be ordinary taxable income. Nothing you have stated indicates he has any basis in his IRA, most folks don't.

    Sounds like it will be a challenge to explain to this client. He may have a mental block against understanding that he never paid any tax on any of the money in his IRA in the first place, so it is going to be taxable now.
    "You said it, they'll never know the difference. Come on, we'll paint our way out!" - Moe Howard

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      #3
      It's hard for a person to understand something when he learns that understanding it will cost him money.
      "The only function of economic forecasting is to make astrology look respectful" - John Kenneth Galbraith

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        #4
        Originally posted by JohnH View Post
        It's hard for a person to understand something when he learns that understanding it will cost him money.
        That is extremely well said.
        Lennox C. (Len) Boush, EA, FNTPI
        Heritage Income Tax Service, Inc.
        Portsmouth, VA

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          #5
          I use it mostly when discussing financial advisors, annuities, & whole life insurance salespersons vs asset allocation, index funds & term insurance with clients.
          But it has other applications.
          Last edited by JohnH; 03-23-2018, 10:33 AM.
          "The only function of economic forecasting is to make astrology look respectful" - John Kenneth Galbraith

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