From:  Dave
Date:  Wed, 22 Jan 2003

I have a question... I took out a Roth IRA $2,000 investment in 2000. The value of the Roth has dropped to $1,000. I took the money and used it for my daughter's college. Can I deduct the loss?

Answer

Date:  5 Feb 2003

Hello Dave,

Assuming this is your only Roth account, yes. The loss is deducted as a miscellaneous itemized deduction on Schedule A, subject to reduction by 2% of adjusted gross income. Since the distribution is a recovery of basis, it is not subject to an early distribution penalty. The distribution must be reported on Form 8606, even though it's not taxable. See IRS Publication 590.

Good luck!
Mike Gray

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