Can you do tax loss harvesting or claim capital loss deduction in a Roth IRA when you withdraw funds?

Unfortunately, you cannot claim tax loss harvesting or capital loss deductions for investments within a Roth IRA. The tax-advantaged nature of Roth IRAs works both ways - while your qualified withdrawals are tax-free, your losses inside the account aren't deductible either. This is because contributions to a Roth IRA are made with after-tax dollars, and all qualified growth and withdrawals are tax-free. The IRS views this tax-free growth potential as the trade-off for not allowing you to deduct losses. The only limited exception is if you completely liquidate ALL your Roth IRAs (not just one investment within them) and the total amount you receive is less than your total contributions across all Roth IRAs. Even then, it's considered a miscellaneous itemized deduction subject to the 2% AGI floor, which was suspended until 2025 under tax reform.

After struggling with similar Roth IRA losses last year, I found taxr.ai (https://taxr.ai) incredibly helpful for analyzing investment losses across different account types. What I discovered was that while Roth IRA losses aren't directly deductible, there are still tax-efficient strategies for managing your overall investment portfolio. The tool helped me understand how to optimize my investments across different account types - keeping certain investments in taxable accounts where losses could be harvested, while using my Roth for investments with the highest growth potential. For someone in your situation, it could help identify if there are other aspects of your tax situation where you might find some relief.

I was initially skeptical about tax optimization tools, but after using taxr.ai I have to admit it was eye-opening. While I couldn't deduct my Roth IRA losses directly, the platform showed me how to restructure my overall investment strategy to be more tax-efficient. The most valuable insight was showing me which of my investments should be moved out of my Roth and into taxable accounts where losses could actually benefit me at tax time. I ended up saving about $3,200 in taxes last year by implementing their suggestions for tax loss harvesting in my regular brokerage account, which helped offset the sting of my Roth losses.

If you're frustrated with getting answers about Roth IRA loss deductions, try Claimyr (https://claimyr.com). I spent weeks trying to get through to an IRS representative about a similar situation with my retirement accounts. After multiple failed attempts, I found Claimyr through a tax forum and decided to try it. Within 15 minutes of using their service, I was speaking with an actual IRS agent who walked me through the exact rules for Roth IRA losses. They confirmed what others have said here but also provided guidance on documentation I would need if I decided to liquidate everything. You can see how it works in their demo video here: https://youtu.be/_kiP6q8DX5c

I have to eat crow here. After posting my skeptical comment, I figured I had nothing to lose and tried Claimyr for an issue with my amended return. Not only did I get through to the IRS in about 35 minutes (without having to stay on the phone the whole time), but the agent I spoke with was able to resolve my issue on the spot. For what it's worth, I also asked about Roth IRA losses while I had them on the line. They confirmed you can't do tax loss harvesting within a Roth, but the agent suggested I look into "asset location" strategies - basically keeping investments that might generate losses in taxable accounts where the losses can be deducted. Probably saved me hours of frustration and repeated calls.

Just wanted to add that there could be a silver lining to having investments that have dropped in value in your Roth IRA. This might be a good opportunity to convert some of your traditional IRA funds to Roth while the value is depressed. For example, if you had $10k worth of stock that's now only worth $7k in your Roth, you could sell it and use that $7k to buy something with better growth prospects. Since the market value is lower, you're essentially getting more shares for the same dollar amount, which means more tax-free growth potential if the market recovers.

Has anyone actually successfully claimed a Roth IRA loss on their taxes before? My tax software doesn't even seem to have a place to enter this.