Tax losses can be harvested from your Individual Retirement Account with just after tax contributions with a Roth IRA. It is however necessary to judge whether the losses are significant enough to close the entire account for this strategy to work.
If you are planning on taking a tax loss, you may have to close all your accounts if you happen to have more than one as all your Roth IRA’s as with the traditional IRA’s are considered by the Federal government to be one account.
It will not be possible to create a loss that is tax-deductible with IRA deductible contributions. It becomes practically impossible if the contributions are with the pre tax dollars. There is no tax basis here with the help of which a tax gain or loss can be determined.
According to the IRA consultant Ed Slott from Rockville Center, N.Y., a deposit of $10000 invested earlier which is worth $2000 now will result in the loss of $8000 to be regarded as a miscellaneous itemized deduction on tax returns in the year 2008 upon withdrawal.
Similarly, if the asset has been funded with a traditional IRA by an under aged person during the past five years there is bound to be a penalty of ten percent as you withdraw the amount. Slot says this is not a capital loss but a tax loss, therefore making it impossible to offset capital gains with this.
With no option to carry forward to the future, these have to be a part of this years returns and treated as a miscellaneous itemized deduction.
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