401K rollover from one account to another

[freddytax]

I recently wanted to consolidate two 401Ks both administered by Fidelity.  This was not as simple as I would've thought and Fidelity had to sell me out of the one 401K and then I had to buy back into the other.  I took a loss since the funds were not available for two business days and in that time the market went down.  Where in Turbotax can I take this loss?

[VolvoGirl]

Sorry you can't take the loss on your tax return.  Your 401K contributions went into the 401K as pre-tax and you never paid tax on them in the first place.  You take the loss when you take a withdrawal,  you will  have less income to pay tax on.  

[VolvoGirl]

Are you saying the market went down before it got added to the new 401K account?  Then your total amount should have bought more shares in the new account.  

[freddytax]

It seems unfair that I should have to take that risk, particularly since the administer, Fidelity, is the same.  I tried to buy back in using margin and was told that margin accounts are not allowed for retirement accounts even though this is a brokerage account, albeit a retirement one.  Why is it different for, say, equities when I want to move a stock from one brokerage to another with no penalty whatsoever?

[freddytax]

Whoops, sorry, the market went UP.

[freddytax]

Sorry, I got that backwards!!  I wish it HAD gone down!

[Opus 17]

Essentially, you had $10,000 when you started, and you have $10,000 now, but because of the delay, you would have had $10,500 if the transaction had closed faster.

That's not a loss you can ever take, even in a regular investment account.  You can't deduct from your income, something that was never included in your taxable income in the first place.  

On top of that, qualified retirement plans work completely differently.  You paid no tax on the money when it was contributed, so everything you withdraw is taxable when you retire.  It doesn't matter how much money you have in the account, or whether you have more or less than you contributed, you pay tax on anything you withdraw because you never paid tax on the contribution.  Your "deduction" is the fact that if you withdraw less (for whatever reason), you pay less tax.  

[freddytax]

Hmmm, I never thought of it that way. 🙂  Thank you!