Is the amount withdrawn from IRA or Sep IRA taxed in anyway if it's a loss?

[TuckerdogAVL]

I understand that positions in an IRA/Sep are not taxed as long as they stay within the IRA/Sep. I understand that if you withdrawal money  from that IRA and take it out of the system, so to speak, that has a gain it is taxed as regular income.  I understand it isn't taxed as long as you buy/sell within the position. So, those aren't the question. My question is: If you put money into an IRA or SEP IRA, and you took the deduction on your Fed income taxes as contributions in earlier years, and now the position(s) have lost money (ie Amazon is down 95%), is any of the money that is leftover taxed if you remove it (withdraw it) from the account? So, for example, if you invested $1000 in 2021 or 2022 and it's now worth only $400, is the $400 taxed? Yes, I read that losses aren't "deductible" since 2018, so in other words, is any amount removed from the actual IRA taxable as income? 

[fanfare]

gains and losses don't count in an IRA.

when you take a distribution it is taxed.

It's always been this way.

[TuckerdogAVL]

So, regardless of where you started, it's where you end up 🙂 Any amount is taxed when removed from the IRA, correct? 

[VolvoGirl · Accepted solution]

You just pay tax on the actual amount you take out.  So if there were losses you will have less to withdraw and less income to be taxed.  

[fanfare]

fortunately Amazon is not down 95%

if you have AMZN stock in your IRA, buy more with your next IRA contribution.

It will go back up.

@TuckerdogAVL 

[TuckerdogAVL]

Actually, from what I was reading, you could pare taxes on w/d from an ira against original basis prior to 2018. That's what made me ask the question. No where does anyone of the financial expert sites say "anything you take out you pay taxes on regardless of your basis." Simple sentence that is no where to be found. Thanks again for your help. 

[fanfare]

"and less income to be taxed"

not much consolation for watching your retirement funds go down.

[VolvoGirl]

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.

That happened to my IRA one year. My 2,000 IRA deduction was in a limited partnership probably for a mall in Florida. This was back in the 80s I think when IRAs were a new thing. Couldn't take a loss because we have no tax basis in it. Nothing you can do about it. At least I got the tax deduction for my contribution.

[fanfare]

basis in an IRA is any contribution that was not deductible or you elected to make non-deductible.

it is not your cost basis as in a regular investment account.

@TuckerdogAVL 

[TuckerdogAVL]

Oops. My mistake. Was looking the wrong line. Only 25% LOL Others are down 90%. Roku, for example, is a shadow of it's former self ... Thanks. 

[TuckerdogAVL]

Funny. Reminds me of the old Marx Brothers bit? "How much would it cost for your not to play?" "You can't afford it, boss." 

Yes, zero is definitely a lot less to be taxed. 🙂 Have a great day. 

[TuckerdogAVL]

That's how I look at them now. I'd rather invest in the IRA and SEP and take my chances then just send more money to the government to send to the military industrial complex. 🙂

[fanfare]

you will be happier in retirement with a Roth IRA that is totally tax free,

rather than a Traditional IRA that grows into a high tax bracket federal and state and makes your social security taxable also.

@TuckerdogAVL 

[TuckerdogAVL]

Nope. The whole reason for the IRAs and SEP is to lower the taxes (and I'm in the lowest bracket to begin with) ... so no use for a Roth (and I'm over 65). I would have done the self-employed new-fangled 401 if I could have figured it out during the last 2 days of the year Forgot to look at it before then... 

[dmertz]

Pre-tax IRA contributions defer taxable income.  They do not necessarily lower taxes.

You shouldn't just be looking at immediate tax savings when what you are doing is pushing the tax liability  into the future.  If you are in a low tax bracket, a Roth IRA contribution likely makes more sense than a traditional IRA contribution where deferring the income doesn't really buy you any tax savings in the long run.  Better to get the opportunity for tax-free growth instead of taxable growth.  Even a capital investment outside of an IRA would likely be better (although perhaps not better that a Roth IRA contribution) because if you are in a low tax bracket your long-term capital gains could be taxable at 0% (or 15% if you are in a slight higher tax bracket)  instead of as ordinary income when distributed from a traditional IRA.  Capital investments outside of an IRA also get a step-up in basis when inherited by your beneficiary(s).

The same reasoning goes for a traditional 401(k) contribution.  Like a traditional IRA, it defers taxable income to the future, it doesn't eliminate taxable income.