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After the recent
dismal performance of the stock market, you may be looking for ways to
recoup any market losses you might hve. Perhaps you've even read that
you can deduct IRA losses. Before you rush to cash out your IRAs, you
should understand what's involved.
While
investmanet losses inside IRAs are typically not deductible, in some
cases you can take a write-off when you close accounts you funded with
after-tax money.
You
could have a deductible loss is you close all your traditional IRAs,
and the amount you receive is less than your total nondeductible
contributions. Likewise, if you close all your Roth IRAs and the amount
you recieve is less than your Roth contributions, you might have a
deductible loss.
IRA
losses are a miscellaneous itemized deduction subject to an income
limitation. You can deduct losses only to the extent that your
miscellaneous deductions, including IRA losses, exceed 2% of your
income. Before you close your IRAs, it's important to estimate how much
of your IRA loss will be limited by the 2% income threshold. Also keep
in mind that, depending on how you reinvest the money, you could lose
the opportunity to shelter any future earnings from tax.
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