The Internal Revenue Service (IRS) does not allow you to deduct your Roth IRA losses year after year. The only way to deduct your losses is to close your Roth IRA accounts. This is because Roth IRAs contain mostly after-tax funds, and for tax purposes, it is possible to deduct IRA losses if all funds are withdrawn from all IRAs held by a customer. For example, once you have liquidated all of your IRAs, the only way to return the money to an IRA is through regular annual contributions or, in the case of Roth IRAs, regular contributions and conversions.
When your investments in a Roth IRA account decrease this way, you'll want to find a way to pay off these losses. The only way to deduct a loss in an IRA is when all funds are withdrawn from all IRAs, and there must be a basis. Although the SECURE Act eliminated expanded IRAs for most beneficiaries, replacing them with the 10-year post-death payment rule, some beneficiaries can still use an additional IRA. Contributions to the Roth IRA are not deductible, so all contributions are considered after-tax amounts (base amounts). If the total value of all your traditional IRAs is less than the total base of all your traditional IRAs, you may be able to deduct a loss. If your Roth IRA suffers a loss due to underperforming investments, there is a way to cancel the loss.
It doesn't matter what the value of your Roth IRA was from the previous year or at any time during the time the account was open. If your Roth IRA balance has fallen below your base, you may need to act quickly to pay off the loss. Both your non-deductible IRA funds and your traditional IRA funds must be dissolved to qualify for loss deduction. Since traditional IRAs generally include mostly deductible contributions and extensions of company plans that were also deductible contributions, it is unlikely that a loss can be claimed even if all funds were withdrawn from all traditional IRAs. Ed Slott, a certified public accountant, created the IRA Leadership Program and the Ed Slott IRA Elite Advisory Group.
