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..Hi..

..Here is a question I hope someone can answer..

..I have a Roth IRA which has lost money ( jeesh, just like my other investments!!) and I want to liquidate the Roth and go to cash..

..question... the Roth is worth $4500 while I put in $6000... I have not had the Roth for five years nor am I 59 1/2...

..so...

..are you allowed to take out your money if there is a loss without penalty??? .. two accouontants said yes and one said no....

..thanks..

..marjory..
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Majory asks:

..are you allowed to take out your money if there is a loss without penalty??? .. two accouontants said yes and one said no....

And the majority wins. Under Roth distribution ordering rules the first money out is always annual contribution money. That may be taken for any reason at any time free of income tax or penalty. You put in $6,000, so you may remove up to $6,000 at any time you choose free of tax or penalty.

The big question is why would you want to do so? There's more advantage to keeping the Roth open than there is to liquidating it. Do so, and any new Roth will have a new five tax-year period to run. Do you always cut and run when an investment sours?

Regards..Pixy

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question... the Roth is worth $4500 while I put in $6000... I have not had the Roth for five years nor am I 59 1/2...

..so...

..are you allowed to take out your money if there is a loss without penalty??? .. two accouontants said yes and one said no....


You're dealing with two separate issues here: the value of your Roth and the tax consequences of liquidating it.

Assuming that all $6,000 was contributions, as opposed to conversions, you can liquidate the Roth without incurring any taxable income or penalty. In addition, you'd have a miscellaneous itemized deduction for the difference between your contributions and the amount withdrawn. See Publication 590.

Now, why in the world do you want to do that? You can liquidate your current investments and leave the cash in your Roth or reinvest it elsewhere within your Roth. Anything you earn from your investments will never be taxed, assuming you meet the 5 year and 59 1/2 rules when you make withdrawals. It's silly to liquidate the Roth when you could just change investments within the Roth and avoid tax on your ultimate earnings.

Phil Marti
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..thanks Pixy for the quick response..

..actually, I just retired and I thought I would take those dispersements first (as needed) since they would have no tax implications..

..I just wanted more info...

..as far as my other investments go... which I manage myself... I still am a dyed in the wool MI'er...so I certainly can not be accused of cutting and running..


..regards..

..marjory..
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Majory writes:

..actually, I just retired and I thought I would take those dispersements first (as needed) since they would have no tax implications..

Ah, so. That makes more sense. In fact (and as Phil pointed out), you could end up with an itemized deduction under the miscellaneous category to the extent it exceeds 2% of your AGI. Still, I would think hard before I closed that IRA. Why restart a five tax-year rule when it isn't necessary? That assumes, of course, that you want to use a Roth IRA in retirement for part-time work income.

..as far as my other investments go... which I manage myself... I still am a dyed in the wool MI'er...so I certainly can not be accused of cutting and running..

That also makes me feel better. I'm sure you're aware some folks tend to give up when an investment heads South. I apologize for thinking you fell in that category, and I'm sincerely glad you don't.

Regards..Pixy

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