- There must be basis (the IRA must contain non-deductible IRA
contributions or after-tax funds transferred into the IRA from a company plan). All funds contributed or converted to Roth IRAs
- Roth IRA: All funds from all Roth IRAs must be withdrawn. Traditional IRA: All funds from all traditional IRAs (including any SEP or SIMPLE IRAs) must be withdrawn.
- The amount of the basis (the nondeductible contributions) must exceed the amount withdrawn.
- Must itemize deductions (as opposed to taking the standard deduction). The loss is claimed as a miscellaneous itemized
- The total of all miscellaneous itemized deductions (including the IRA loss) must exceed 2% of AGI.
- Must NOT be subject to the alternative minimum tax. The loss deduction is lost if subject to AMT.
Even when these six tests are passed, for those under age 59½, Roth IRA distributions could be subject to the 10% early withdrawal penalty if converted Roth IRA funds are withdrawn within five years of the conversion