Loss of a Simple IRA

[mountainbluebird]

I have read publication 590-B from the IRS and it claims I can take a deduction due to theft or fraud of my IRA. the years that I take a full distribution of my account.  What form do I use to file this?

[NCperson]

@mountainbluebird  can you please site the page and column where you find this reference?  I scanned the documents for the word "fraud" and "theft" and saw nothing pertaining to what you are referencing.  

Would you mind explaining your circumstance of fraud or theft of your IRA? 

[VolvoGirl]

Me too.  Can't find it in 590B.   What page are you referring to where it says about taking a deduction?  https://www.irs.gov/pub/irs-pdf/p590b.pdf 

Because that doesn't sound right.  If you made Traditional IRA contributions you already got a deduction when you contributed to it.  Then if you had a loss you would just have less withdrawals to take out and pay take on.  

The only thing I know is....

You used to be able to deduct it but only If this was your ONLY IRA and you closed it AND did NOT take the tax deduction for your contributions.

[NCperson · Accepted solution]

I'd state is slightly differently: when you contributed money to the IRA, you did not pay tax on that money.  So if there is a loss, the IRS is not going to help you out on money that you never paid them tax on in the first place.

You won't find a 'deduction' in the normal sense of a tax return when you originally contributed the money, but there was a reduction from your gross wages on your pay stub to your Box 1 wages that are the basis of your tax return...

[dmertz · Accepted solution]

As other have suggested, Pub 590-B says no such thing.  If you took a distribution from your IRA, what you did with the cash after that (other than rolling it over to another qualified retirement account within 60 days) has no effect on the tax treatment of the distribution.

If you lost the cash due to theft or fraud after you received a distribution from the IRA, that theft or fraud is  an entirely separate event with respect to taxation and is only deductible if it was due to a Ponzi scheme because the deduction for other types of theft losses has been suspended until 2026.

If money was stolen from your IRA by someone managing your IRA, that just reduces the amount available to eventually be distributed.  Even if you have basis in nondeductible traditional IRA contributions, the  deduction for unrecoverable basis has been suspended until 2026.  You can't get a deduction for money on which you never paid taxes in the first place.