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.

Step 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.

Step 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.

Step 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.

Step 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.

Things You'll Need

  • Calculator

  • Schedule A

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