Close roth for tax deduction and open new one in same yr?
Close roth for tax deduction and open new one in same yr?
My wife and I have little left in our roth ira's but significant losses. I'm considering closing them both to be able to deduct the losses. Can I close the accounts, request a payout, and then turn around and open a new roth for each of us a few days later and still be able to deduct the losses?
Re: Close roth for tax deduction and open new one in same yr
I don't think you can deduct losses in an IRA or other retirement account on your personal return. Better confirm with a CPA.
Also if you plan to take money out of an IRA and put it back into another IRA be careful to do a direct fiduciary to fiduciary transfer and not have a check cut in your personal name. If you do the IRS has a bunch of rules and traps you will need to follow.
Also if you plan to take money out of an IRA and put it back into another IRA be careful to do a direct fiduciary to fiduciary transfer and not have a check cut in your personal name. If you do the IRS has a bunch of rules and traps you will need to follow.
Re: Close roth for tax deduction and open new one in same yr
There are some circumstances when you can get a tax deduction for closing out a Roth IRA. You can search for the details. But...
1. It can only be claimed as a miscellaneous itemized deduction, with the usual limitation that the total of those deductions must exceed 2% of AGI. It's not something you can claim on Schedule D as a capital loss.
2. Once the money is out, it's out -- but you are still subject to the annual cap on Roth IRA contributions. If you've already contributed the max this year, you can't just open another Roth IRA and do it again.
1. It can only be claimed as a miscellaneous itemized deduction, with the usual limitation that the total of those deductions must exceed 2% of AGI. It's not something you can claim on Schedule D as a capital loss.
2. Once the money is out, it's out -- but you are still subject to the annual cap on Roth IRA contributions. If you've already contributed the max this year, you can't just open another Roth IRA and do it again.
Re: Close roth for tax deduction and open new one in same yr
And you have to close all your Roth IRA's, not just the ones with losses.
Re: Close roth for tax deduction and open new one in same yr
I've researched it enough to know that I can take the deduction and how it works. What I can't seem to figure out is if I can still open a new Roth IRA shortly after, and within the same yr, because I don't know if that would be treated as a Rollover/Transfer to another Roth IRA when I deposit the funds in the new Roth IRA? I haven't made any contributions to a Roth IRA yet this year. So I'm eligible from that standpoint. I just don't know if doing so within a certain time frame could somehow disqualify me from deducting the loss on the original Roth?2. Once the money is out, it's out -- but you are still subject to the annual cap on Roth IRA contributions. If you've already contributed the max this year, you can't just open another Roth IRA and do it again.
I only have one Roth IRA each for me and my wife.And you have to close all your Roth IRA's, not just the ones with losses.
Re: Close roth for tax deduction and open new one in same yr
No, to deduct Roth losses on schedule A you need to have closed all your Roth accounts and calculate the loss based on all contributions to the Roth - the value and basis of your Roth is calculated on a tax year basis so you will need to show no Roth accounts left in the tax year for which you are claiming the losses.timmy123 wrote: Can I close the accounts, request a payout, and then turn around and open a new roth for each of us a few days later and still be able to deduct the losses?
Re: Close roth for tax deduction and open new one in same yr
How can this be a good idea? Do you not expect the investments to eventually recoup? Or why not just sell what you have and replace it with a better investment that will recoup it's losses as the market goes back up.
Even if you can deduct it, how is that helpful? It's not like you get $100 back in taxes if you have $100 in losses. You only get a percentage back.
I must admit I never thought about doing this, but I can't see a benefit in doing it. Maybe someone could educate me/us.
Even if you can deduct it, how is that helpful? It's not like you get $100 back in taxes if you have $100 in losses. You only get a percentage back.
I must admit I never thought about doing this, but I can't see a benefit in doing it. Maybe someone could educate me/us.
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Re: Close roth for tax deduction and open new one in same yr
What are the Roth funds invested in that's causing such losses?timmy123 wrote:My wife and I have little left in our roth ira's but significant losses. I'm considering closing them both to be able to deduct the losses. Can I close the accounts, request a payout, and then turn around and open a new roth for each of us a few days later and still be able to deduct the losses?
"But let's be glad for what we've had, and what's to come." |
-- Betty Comden & Adolph Green
Re: Close roth for tax deduction and open new one in same yr
I have to wonder the same things... Why would anyone want to do this, and how is this Roth invested to have significant losses and little left... in 2014?
Re: Close roth for tax deduction and open new one in same yr
There is NO specific IRS guidance on this. If you close all your Roth IRAs, your loss is the amount that your contributions (basis) exceeds what you received in total distributions. At the very least, you should NOT open a later Roth IRA in the same year. If you do, the 5498 issued for the year will show the IRS that you have a year end balance and suggest that you did not even fully close your Roths. If you waited until the following year to make a current year contribution (not a prior year contribution), you would probably be OK, but I am just guessing because there is no IRS guidance on the subject. A related question if you did this would be exactly when your 5 year holding period started. And again no IRS direct guidance, but the year you first contributed to a Roth IRA in unchanged, and there is nothing in the tax code that indicates if you close all your Roths that the prior holding period is erased and must start over.timmy123 wrote:My wife and I have little left in our roth ira's but significant losses. I'm considering closing them both to be able to deduct the losses. Can I close the accounts, request a payout, and then turn around and open a new roth for each of us a few days later and still be able to deduct the losses?
Remember, in addition to the 2% of AGI floor on misc deductions, you have to have enough itemized deductions to not only itemize in total, but to exceed your standard deduction by the entire amount of your misc deduction in order to effectively apply the deduction. And if you are subject to AMT, you forfeit misc deductions as well.
Finally, the toughest portion of this question to analyze is how much of a loss do you have to suffer to make it beneficial to liquidate your entire Roth balance (either or both spouses). To replace that balance you either have to makeup post tax regular contributions or make taxable conversions. Seems to me that once you determine how much you would benefit from the deduction in tax savings, you will need a very large loss as a % of your Roth basis to receive enough of a tax benefit to warrant liquidation. In other words, how much will you pay in future taxes to replace the distribution you will take?
Re: Close roth for tax deduction and open new one in same yr
Thanks everyone for the valuable feedback! As far as how one loses so much to make it worthwhile, we lost a lot when the market tanked a few yrs ago then did the worst thing and got into gold funds for security, which backfired, ultimately leading to a young man trying to recoup big losses trading leveraged etfs, which only multiplied the pain. Learned my painful lesson and have large losses to show for it. As far as how to proceed, sounds like I need to talk to an accountant to see if it's worth cashing out.
Re: Close roth for tax deduction and open new one in same yr
Ouch!!.. Well, you have found a good place here to break those bad habits.