Roth IRA Losses: Are They Tax Deductible?

Roth IRA losses are not tax deductible on your federal return. A narrow deduction once existed for taxpayers who closed every Roth IRA they owned and got back less than they had contributed, but the Tax Cuts and Jobs Act suspended it starting in 2018, and the One Big Beautiful Bill Act made that elimination permanent by adding Section 67(h) to the Internal Revenue Code.¹ There is no mechanism under current law to write off a Roth IRA loss in 2026 or any future year.

What the Old Deduction Allowed

Before 2018, the IRS recognized that a Roth IRA funded with after-tax dollars could produce a real economic loss if the total distributions from the account came in below the total contributions. The gap was treated as a miscellaneous itemized deduction subject to the 2% adjusted gross income floor under Internal Revenue Code Section 67.²

Even then, the deduction was hard to use. You had to itemize instead of taking the standard deduction, and only the portion of your miscellaneous deductions above 2% of AGI counted. You also had to close every Roth IRA you owned, at every custodian, because the IRS treats all your Roth accounts as a single combined account for basis and distribution purposes. Cherry-picking a single losing account to liquidate was never allowed. Most people who lost money in a Roth never cleared both hurdles.

Why the Write-Off Is Gone for Good

The Tax Cuts and Jobs Act of 2017 suspended all miscellaneous itemized deductions subject to the 2% AGI floor for tax years 2018 through 2025. The Roth IRA loss deduction fell squarely inside that bucket. The suspension was scheduled to lapse after 2025, which would have put the deduction back in play for 2026 returns.

That reinstatement never happened. The One Big Beautiful Bill Act added Section 67(h) to the Internal Revenue Code and made the elimination permanent. Formerly deductible items such as unreimbursed employee expenses, investment advisory fees, and Roth IRA basis losses are now permanently non-deductible on your federal return.¹

If you’ve been reading older guides suggesting you can capture a tax benefit by closing all your Roth accounts at a loss, that advice described a rule that no longer exists. Liquidating every Roth IRA you own in 2026 produces no federal deduction.

What Actually Happens If You Pull Money Out of a Losing Roth

The deduction is gone, but the ordering rules that govern Roth withdrawals still work in your favor when the account is underwater. The statute pulls money out in a strict sequence: contributions first, then conversions and rollovers, then earnings.³

Contributions always come out tax-free and penalty-free at any age, because you already paid income tax on that money. So if you contributed $50,000 and the account is now worth $42,000, the IRS treats every dollar you withdraw as a return of your basis. No income tax. No early withdrawal penalty. You’ve still lost $8,000 in real terms, and that loss simply disappears with no offsetting federal tax benefit, but at least the withdrawal itself costs you nothing.

The picture gets more complicated if your account holds converted amounts. Each conversion has its own five-year holding period, and converted funds withdrawn inside that window by someone under 59½ can trigger the 10% early distribution penalty under Section 72(t).⁴ Contributions come out before conversions, so you only reach the conversion layer after your contributions are exhausted. If you’re close to that line, map the withdrawal out with a tax professional before you pull the trigger.

Better Options Than Chasing a Deduction That Doesn’t Exist

Since the write-off is off the table, the real question is what to do with an underwater Roth. A few options actually produce a benefit.

Hold and wait. A Roth’s core advantage is decades of tax-free growth. Selling at the bottom and closing the account locks in the loss with nothing to show for it.
Rebalance inside the account. Selling losing positions and buying different ones inside a Roth triggers no taxable event, so you can reposition without worrying about capital gains or wash sale rules.
Convert traditional IRA money while values are depressed. A lower balance means a smaller tax bill on the conversion, and the converted funds grow tax-free in the Roth afterward.
Harvest losses in a taxable account instead. Capital losses in a regular brokerage account offset capital gains and up to $3,000 of ordinary income per year. If you hold a similar investment in both a Roth and a taxable account, the taxable-account sale is the one that produces a deduction.
Keep contributing. The 2026 IRA contribution limit is $7,500, or $8,600 if you’re 50 or older. Buying at lower prices means more shares for the same dollar.⁵

The Risk of Claiming It Anyway

Outdated articles and some older tax software still reference the Roth IRA loss deduction, which creates a real risk of claiming a write-off that no longer exists. If you take the deduction on a 2026 return and the IRS disallows it, you’ll owe the unpaid tax plus interest. An accuracy-related penalty of 20% of the underpayment can apply on top of that if the IRS finds negligence or a substantial understatement of income tax.⁶

The 2026 standard deduction is $16,100 for single filers and $32,200 for married couples filing jointly, so even in the parallel world where miscellaneous deductions still existed, most taxpayers would never have cleared the itemization threshold on the strength of a Roth loss alone. If a preparer suggests deducting a Roth IRA loss on a 2026 or later federal return, push back and ask them to point to the statute. There isn’t one.

A Note on State Returns

Everything above addresses federal tax law. The research supporting this article covers only federal rules, so if you want to know whether your state conforms to the federal elimination or still permits some version of the deduction, check with a tax professional familiar with your state’s conformity rules.

1
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026, Including Amendments From the One, Big, Beautiful Bill
2
Office of the Law Revision Counsel. 26 U.S. Code 67 – 2-Percent Floor on Miscellaneous Itemized Deductions
3
Office of the Law Revision Counsel. 26 USC 408A – Roth IRAs
4
Office of the Law Revision Counsel. 26 USC 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts
5
Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026; IRA Limit Increases to $7,500
6
Office of the Law Revision Counsel. 26 U.S. Code 6662 – Imposition of Accuracy-Related Penalty on Underpayments