Upon liquidation of a Roth IRA, the taxpayer can deduct the loss as a miscellaneous itemized deduction, subject to the 2% floor on Adjusted Gross Income.

Specific Details

The parents reduced their taxable income by $5,000 by deducting a Roth IRA loss as a miscellaneous itemized deduction. Since the parents income was taxed at the 30% tax bracket, the income reduction may decrease their income taxes by $1,500 ($5,000 x 30%).

Potential Savings

If you are in a combined (federal, self-employment, and state) tax bracket of 30%, you could reduce your taxes up to $300 for every $1,000 of income reduction by deducting a Roth IRA loss as a miscellaneous itemized deduction.