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Old 01-27-2014, 05:34 PM
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Loss on conversion from after-tax 401K to Roth IRA

Hi. I have just started making contributions to my after-tax 401K account with my employer. I plan to convert these after-401K assets to Roth IRA. I know that I’ll be subject to tax only on “earnings” for these conversions. What would be the tax consequences if I made loss(es) rather than gains during the conversion these assets? For example, is this something that I can carry forward as a capital loss and declare as a deduction from income tax? Thank you for your help.



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Old 01-28-2014, 07:45 AM
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Originally Posted by golf2000 View Post


#1;Hi. I have just started making contributions to my after-tax 401K account with my employer. I plan to convert these after-401K assets to Roth IRA. I know that I’ll be subject to tax only on “earnings” for these conversions.


#2;What would be the tax consequences if I made loss(es) rather than gains during the conversion these assets? For example, is this something that I can carry forward as a capital loss and declare as a deduction from income tax? Thank you for your help.
#1; Correct; after-tax contributions are the amount of deductions you make from your monthly income AFTER taxes have been paid.you don't have to pay tax on withdrawals because you've already paid taxes . Any earnings you make however are taxable just as ordinary income. Less restrictions on withdrawing income before the age of 59.5.
Note: If you withdraw any amount before the age of 59.5, you will have to pay taxes on the earnings you made ON THAT WITHDRAWAL amount. For example, if you withdrew $5k on which you earned $450 interest, you will not be taxed on the $5k. However, you WILL be taxed on the $450.


#2;The IRS treats the tax deduction for 401k losses as a miscellaneous deduction, meaning you must itemize your deductions using Sch A to claim the deduction. But only in specific circumstances can you claim a loss on your 401k on your taxes: You must close your 401k, and your tax basis for the account must be less than your total distributions over the life of the account. You cannot claim a loss based on your losses for one year. Instead, the losses are based on the losses over the life of the account;you need to calculate the tax basis of your 401k account. asyou have a traditional 401k account and have not made any nondeductible contributions (which are rare), your tax basis is $0, and you cannot claim a 401k loss on your taxes. Subtract the value of all the distributions you have taken from your 401k plan, including the distribution you take to close the account. For example, if you made $50k in after-tax contributions to your 401k plan and had received only $40k in distributions, you would have a loss of $40k.then, you need to add the value of any other miscellaneous deductions that you have to the value of your 401k losses deduction. Report the loss as a miscellaneous deduction on your Sch A list of itemized deductions.unless you itemize deductions on your fed return, you can’t deduct the losses.



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Old 01-28-2014, 12:40 PM
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Thanks again for your prompt and helpful guidance.



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