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My wife and I met with a financial advisor to create a Trust and review our long term plans. He also suggested among other things, that my wife and I both open a Roth IRA with $500 each. After we did this I realized that I could do better with my stocks and my current 401K plan at work and have not contributed anything to these accounts since they were started in 2007. I got a letter stating that since these accounts are under $500, they can liquidate the accounts with a 10% federal income tax and additional 10% penalty for being under 59 1/2. I do not really want to throw more money at a bad investment by keeping the balance above $500.

My question is, can I write any of the loss off if/when they liquidate the accounts?
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I do not really want to throw more money at a bad investment by keeping the balance above $500.

Pick a different investment and open a roth account with a company that can make that investment, and transfer your roth to there.
Almost anything your 401k plan has you could also invest into with a Roth.
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After we did this I realized that I could do better with my stocks and my current 401K plan at work and have not contributed anything to these accounts since they were started in 2007.

That's questionable. I mean, from what you've suggested, you left money just sitting in
an account for several years without doing anything with it


I got a letter stating that since these accounts are under $500, they can liquidate the accounts with a 10% federal income tax and additional 10% penalty for being under 59 1/2. I do not really want to throw more money at a bad investment by keeping the balance above $500.

Is the letter from your broker or from your financial advisor? I think you need to terminate
your relationship with that party. By the sounds of it, your Roth IRA only has the equivalent
of Roth contributions. There is no penalty on early withdrawal of Roth IRA contributions.
If the account is indeed a Roth IRA, the 10% income tax penalty is also suspect/wrong?
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I got a letter stating that since these accounts are under $500, they can liquidate the accounts with a 10% federal income tax and additional 10% penalty for being under 59 1/2. I do not really want to throw more money at a bad investment by keeping the balance above $500.

There isn't enough of a loss to actually deduct. If you close all ROTHs, it is possible to include the loss as a miscellaneous deduction on Schedule A but only the amount of miscellaneous deductions over 2% of your income is actually deductible. With an original contribution of $1,000 and some current value, your loss can't be extremely large. Unless you are already itemizing and have other miscellaneous deductions of 2% of your income, the deductibility of the loss isn't going to change your tax liability.

The account balance is below your contribution amount. Contributions to a ROTH can be withdrawn at any time without penalties or taxes. Income taxes and penalties applies to amounts over your contributions. You can ignore that part of the issue. You will receive 1099-Rs for the distributions, which require that you report the distributions and offseting contributions on your income tax return.
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