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Any way undo a Roth contribution (and take the loss)?
Old 11-08-2007, 04:53 PM   #1
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Any way undo a Roth contribution (and take the loss)?

I'm wondering if anyone knows if there is a way to undo a current year Roth contribution, take the loss, and then recontribute the $4,000? Even if I could just undo it and re-contribute $4,000 I'd be happy so I could increase the long-term value of the Roth account's tax deferral.

I know you can recharacterize contributions, although changing it from a Roth contribution to a traditional IRA contribution doesn't seem like it would help me. I also know you can undo contributions if you have overfunded because your AGI is too high, although that isn't the case this year.

Any help would be appreciated as I can't find a clear answer to whether there is a way to do this. I looked at the usually helpful fairmark website, but couldn't find an answer there. Thanks.
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Old 11-08-2007, 05:00 PM   #2
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Check out this link: Undoing Contributions and Conversions

Ooops, I see you've already looked at Fairmark. This section didn't offer any help?
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Old 11-08-2007, 05:12 PM   #3
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Well, the "problem" is that everything seems to be written toward the situation where you converted your IRA into a Roth, had subsequent losses, and don't want to pay the conversion taxes on that previously larger amount.

I'm looking for something that talks about what the doofus who put his wife's 2007 Roth contribution into WaMu and turned $4k into $2k can do about that. It's not a large amount, but if I can harvest it as a tax loss or at least replenish the account it would be nice.
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Old 11-08-2007, 09:11 PM   #4
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Quote:
Originally Posted by terminator View Post
Well, the "problem" is that everything seems to be written toward the situation where you converted your IRA into a Roth, had subsequent losses, and don't want to pay the conversion taxes on that previously larger amount.

I'm looking for something that talks about what the doofus who put his wife's 2007 Roth contribution into WaMu and turned $4k into $2k can do about that. It's not a large amount, but if I can harvest it as a tax loss or at least replenish the account it would be nice.
I think you are SOL. I had to undo one last year, for tax law reasons. I had a small loss from a lapsed option I bought. My accountant said it is just gone.

Ha
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Old 11-08-2007, 09:38 PM   #5
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Yes, you can take a Roth IRA loss on your individual tax return.

If you have access to past issues of the WSJ, look at the 03 NOV 07 issue for the ASK ENCORE column on page B2. There is an article titled 'How to Handle Losses in Your Roth IRA Account' by Kelly Greene.

Basically, if you have a Roth IRA that is currently valued at less than you have contributed you can claim the loss as a miscellaneous itemized deduction. The IRS limits the impact of the loss by having you first subtract 2% of your AGI from the Roth loss so you may not wind up with much, but it's at least some way to share your loss with Uncle Sam!

As always, check with your tax advisor on your individual circumstances or if you are a do-it yourselfer, study up!

Good luck - RJS
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Old 11-09-2007, 09:50 AM   #6
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RJS,

Thank you, that was very helpful. Reading up some more on it, it appears I'd have to liquidate/distribute the account to take the 2% AGI limited tax loss, so for me it's not worth it since I'd rather compound the current balance than take the small tax loss. Thanks for the info.

p.s. For anyone who might refer to this thread later, the issue is addressed In IRS Publication 590 in the section on Roth IRAs, p.66 "Recognizing Losses on Investments."
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Old 11-09-2007, 12:34 PM   #7
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Quote:
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Yes, you can take a Roth IRA loss on your individual tax return.
Yes, but that doesn't mean you can add a new $4K into a Roth. Once you've contributed $4K for 2007, that's it. You can take the money out without owing taxes or penalties if there's a loss, but you don't get another chance to contribute for the year.
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