How to Show 401k Losses on My Taxes

Only in limited circumstances can you deduct 401k losses.

The IRS treats the tax deduction for 401k losses as a miscellaneous deduction, meaning you must itemize your deductions using Schedule A to claim the deduction. But only in specific circumstances can you claim a loss on your 401k on your taxes: You must close your 401k, and your tax basis for the account must be less than your total distributions over the life of the account. You cannot claim a loss based on your losses for one year. Instead, the losses are based on the losses over the life of the account.

Things You'll Need

• Calculator
• Schedule A

Instructions

1. Calculate the tax basis of your 401k account. If you have a traditional 401k account and have not made any nondeductible contributions (which are rare), your tax basis is $0, and you cannot claim a 401k loss on your taxes. If you have a Roth 401k, all of your contributions are nondeductible, so the tax basis of your account is the amount you have contributed.

2. Subtract the value of all the distributions you have taken from your 401k plan, including the distribution you take to close the account. For example, if you made $50,000 in after-tax contributions to your 401k plan and had received only $40,000 in distributions, you would have a loss of $40,000.

3. Add the value of any other miscellaneous deductions that you have to the value of your 401k losses deduction. Report the loss as a miscellaneous deduction on your Schedule A list of itemized deductions.

4. Subtract 2 percent of your adjusted gross income form your total miscellaneous tax deductions. For example, if your 401k losses are your only miscellaneous deduction, you have a loss of $10,000 and you have an adjusted gross income of $30,000, you would have $9,400 deducted from your taxable income.

References

• IRS: Publication 575
• CNN Money: Can I Deduct 401k Losses?

Resources

• IRS: Schedule A