(402) 397-5033 Jeff@omahaadvisors.com

Don’t Lose Out on Claiming a Loss: This Week’s Q&A

This week’s Slott Report Mailbag looks into claiming a loss in a traditional IRA, and 403(b) transfers. As always, we recommend you work with a competent, educated financial advisor to keep your retirement nest egg safe and secure.

Question:

I receive your emails relating to IRAs.  I have a question regarding claiming a loss in a traditional IRA. Researching the matter on the IRS website I only find a provision for taking a tax loss on a Roth IRA after the entire balance has been distributed. I do not find any provision for claiming a loss on a traditional IRA. Is there any provision for doing this? If so, please provide the appropriate reference or explanation.

Thank you,
Lynette

Answer:

Lynette,

In general, an IRA is comprised only of pre-tax dollars. If that’s the case, then there is no way to claim an IRA loss because there is no loss. You can only “lose” money that you have paid tax on, at least as far as the IRS is concerned. In the event you happen to have after-tax amounts in your traditional IRA, then you may be able to claim a loss if you distribute all of your traditional IRAs and the total distribution is less than the after-tax amounts that were in the account. I say “may be able to claim” and not “will be able to claim” though, because the loss can be eliminated in a number of ways, such as the 2% floor for miscellaneous itemized deductions.

Question:

I’ve been told it is best to move money from a 403(b) into a traditional IRA and then into a Roth versus just going from the 403(b) straight into a Roth. All money in the 403(b) is pretax. The 403(b) is a non-active account as the vendor was dropped from the school district’s approved list years ago. What would you advise?

Answer:

There is no reason to go to a traditional IRA first. You can go right to the Roth IRA from the 403(b). No issues there.