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No Write-Off for 401(k) Losses
I heard there is a way to write off IRA losses, does this work for 401(k)s too?
By Kimberly Lankford, Contributing Editor, Kiplinger's Personal Finance
February 10, 2003
Unfortunately, the answer is no. Because 401(k) contributions are made with pretax money, you can't have a tax loss, even if your account value falls to $0.
You might have an argument if you happened to make after-tax contributions, your employer didn't offer any kind of match and you could prove that you put in more after-tax money than you got out. But so far that's never happened and probably never will.
This works for Roth IRAs because they are funded with after-tax dollars. You can deduct Roth losses if you close all of your Roth IRA accounts and the money you receive is less than the money you contributed through the years.
The loss is considered a miscellaneous itemized deduction -- like job-hunting costs and employee business expenses -- and is only deductible if you itemize and when these deductions are greater than 2% of your adjusted gross income. That means if your income is $100,000 for the year, you can only write off miscellaneous deductions after you cross the $2,000 threshold. For more information about deducting Roth losses, see Write Off Roth Losses.