Q: What to do with IRA loss?

Your best moves appear to be to (1) find some better funds to invest in so you don't have a loss, (2) contribute more into the IRA accounts. There is no deduction for a loss within an IRA account--there are so many benefits that Congress didn't see the need for that deduction. Finally, if you don't have a

-john-

In what are your IRA funds invested? Posting this can help the group help you.

At a minimum, I suggest you commence a study of how "asset allocation" has historically paid off well /for the long term./ Were your IRA investments diversified?

How old are you? When do you plan to retire? Does your employer offer a 401(k) with matching? How much, if any, is matched?

Lastly, do not stop contributing to your IRAs. The earnings growth of an investment made early far exceeds that of an investment made late.

Why have you lost a significant percentage? Is it because of the choice of funds? Is it because of fees imposed?

In theory, you can "realize" a loss in an IRA (Roth or traditional, though only in the case where the traditional was funded with after-tax money - ie. it is has a "basis").

In practice, I don't know of anyone who has actually done this, nor is it likely a good idea.

Basically, if you have a loss in the IRA if (a) the IRA is fully liquidated and distributed and (b) the proceeds from doing so are less than your basis.

If you have no non-deductible contributions to a traditional IRA, your basis is zero and there's no chance of deducting anything.

A Roth's basis is the sum of the contributions to it. You may realize a loss there - but *should* you? I'd say probably not.

Losses realized this way are subject to a variety of restrictions, too - they are not even as useful as normal capital losses (which may offset capital gains and even some regular income). IRA losses, if you can manage to find them (via the rules regarding basis, etc) get deducted only as part of itemized deductions on sched. A as "misc. deductions" only to the extent that they exceed 2% of your AGI -- and you don't even get that if you're subject to AMT.

In the meantime, having liquidated your IRA, you are now set back by having to start funding it again, a little at a time, to save for retirement in the most tax efficient way. It's very unlikely that taking those losses now is worth the potential loss of several years of tax-free or tax-deferred investing you could have had by just leaving the money where it was.

Unless your situation is quite extraordinary, your best bit is very likely just to review those IRA portfolios, make sure the money's invested well and diversified and be patient.

Google "IRA Loss" and read a few of the hits there, but don't count on much.

If you're really still going to do this, I'd recommend consulting an accountant. And consider whether those losses will exceed how much that accountant will cost, too.

What are you choosing for investment (e.g. mutual funds, index funds, stocks, bonds)?

If you can afford to, it'a a good idea to make the contributions.

You may want to convert your traditional IRA to a Roth now while its value is down, particularly if you have any after tax contributions to it.

-- Ron

snipped-for-privacy@fractious.net wrote in news: snipped-for-privacy@panix2.panix.com:

This is very good advice, and I was contemplating these options. Thanks for educating me on this.

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Ron Peterson wrote in news:1193689739.564155.174300@

Thanks for the advice. What are the requirements/qualifications for conversion? All my contribution to traditional IRA was after tax. I am not qualified to contribute to Roth IRA, due to income limit.

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Your AGI has to be below $100,000, but in 2010 that limitation may be lifted (possibly a one time thing).

Conversion may help anyway depending on your time to withdrawal. Look at how your state taxes IRA withdrawals to get a better idea of your best way to handle IRAs.

-- Ron