Negative Gain Roth IRA conversion

Forum|Forum|3 years ago
December 24, 2022
2 replies
39 views

As many probably have this year, my non-deductible IRA contributions for the year have a negative unrealized gain right now. As far as I can tell, if I convert this account to a Roth IRA, the negative gain will effectively be lost rather than be treated as a deduction. is this correct? and if so, are there other ways I can manage the accounts to maximize the use of the losses?

Best answer by dmertz

Correct. Prior to the Tax Cuts and Jobs Act of 2017 you could claim a deduction subject to the 2% of AGI floor for the unrecoverable basis, but the TCJA suspends until 2026 deductions subject to the 2% of AGI floor.

Since it's not clear that your basis remains for future use if you make a complete distribution of your entire traditional IRA balance, I suggest leaving a small balance in your traditional IRAs to ensure that the basis carries forward to be able to be applied to future traditional IRA distributions.

Anonymous_

Level 15

@Mike9241

dmertzAnswer

Level 15

SR5060Author

Level 2

Great thanks, so the basis in this case is not reduced proportionally to what is converted? But the net excess loss would be effectively carried forward fully through the account?

dmertz

Level 15

"so the basis in this case is not reduced proportionally to what is converted"

If your basis is more than the amount that you have in traditional IRAs, the amount of basis that is applied to any traditional IRA distribution is equal to the distribution. See the calculation on Form 8606 where line 10 in not permitted to be more than 1.000.