Loss on IRA Liquidation

December 20, 2017

This is the third in our series Last Minute Actions for the New Tax Law.

In limited circumstances, it can make sense to liquidate an IRA for the purpose of claiming a loss deduction. This works only if the total amount of basis you have in all your IRAs in the same category (traditional or Roth) exceeds the total value of those IRAs. Even then, it isn’t necessarily a good idea, but in the right situation, shutting down IRAs to claim a tax loss can be a smart move. This opportunity disappears at the end of 2017.

Bear in mind that a traditional IRA has basis only to the extent of your nondeductible contributions. This rule won’t help you claim losses that occurred in an IRA funded with deductible dollars. Understand also that any loss would have to be claimed as a miscellaneous itemized deduction, subject to the 2% floor. In other words, you need to be in a position where it’s advantageous to itemize rather than claim the standard deduction, and the deduction will be reduced by 2% of your adjusted gross income.

In light of recent stock market performance, it’s likely that relatively few taxpayers have the kind of retirement plan losses that would justify this move. If you’re one of those unlucky investors, you’ll have to move fast to evaluate this opportunity and, if advisable, implement it by December 29, the last business day in 2017.


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