If you sell stocks at a loss in a taxable account, you’ll get a capital loss than can provide tax savings. Sell the same stocks in an IRA and you get no tax benefit. You may get a tax break, though, if you cash out of your Roth IRA and take a loss.
Say you invested $20,000 in a Roth IRA. You close out the account and get back only $14,000, for a $6,000 loss. That loss counts as a miscellaneous itemized deduction.
Such miscellaneous deductions over 2 percent of your adjusted gross income (AGI) can be written off. If your AGI is $60,000, 2 percent is $1,200. Thus, if all of your miscellaneous deductions total $7,000, you’d get a $5,800 deduction: $7,000 minus $1,200. However, this type of deduction won’t reduce your alternative minimum tax (AMT) obligation.
Generally, this tactic won’t work with a traditional IRA because traditional IRAs usually have been funded completely or mostly with pre-tax contributions.
