Offset 401k withdrawal with stock losses?

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My stock losses exceed the $3000 deductible limit. Can I withdraw from my 401K (or recharacterize to Roth IRA) and offset the amount of the withdrawal against my stock losses, thus not paying taxes on the withdrawal?

TurboTax Deluxe Windows

MichaelL1

Level 15

Unfortunately it will not work that way.

The capital losses first get applied to other capital gains, then after that up to $3,000 can be deducted and will reduce the other income on the return.

But no more than $3,000, so if you took $10K out of the 401K or to a Roth, the $3,000 of capital losses would be the same regardless of what you did with the 401K.

zenmster

Level 6

Wait - I just did my TT taxes and I was able to offset my $15000 Cap G against my $25000 in Cap losses so now my LOSS carryover is $10000. I was able to use more than $3000 of my losses!!!!!

TomD8

Alumni - Champ

@zenmster -- Yes, you'll be able to carryover the entire $10,000 loss - but you'll only be able to apply $3,000 of it each year against income other than capital gains.

**Answers are correct to the best of my ability but do not constitute tax or legal advice.

zenmster

Level 6

So if I have a capital gain of $5500 but I have a cap loss carryover to use of $10,000 you are saying I can only use $3000 of the $10,000 to offset my $5500 gain so I’d still be paying taxes on $2500 even tho I have a carryover loss of $10,000?!