If you have seen your retirement funds take a tumble lately, you might find yourself wondering whether you can at least use the loss as a deduction on your taxes. The answer is that it depends on the type of account you have, since tax laws differ for 401(k) accounts, traditional Individual Retirement Accounts (IRAs) and Roth IRAs.

 If you have a traditional IRA, it is unlikely that you will be able to deduct losses, though not impossible. You must meet certain conditions in order to claim the loss. You must have funded at least part of the IRA with after-tax funds, which would be rather unusual. The total amount of after-tax (nondeductible) contributions is called your basis. If you have multiple IRAs, in order to claim the loss in one, you must liquidate all of your IRAs of the same type (in this case traditional), even those that are profitable. If the basis is more than the sum you receive after the liquidation, you can claim a tax loss.

If you have a Roth IRA, you are far more likely to be able to deduct losses, since all Roth IRA contributions are non-deductible. Again, in order to be able to claim the loss in a Roth IRA, you must liquidate all Roth IRA accounts. You can hold onto any traditional IRAs you have, which are treated separately. Your tax basis is the amount of your contributions (but not earnings), plus conversions from a traditional IRA, minus withdrawals already taken. If the amount you receive from the accounts is less than the tax basis, the difference is your loss.

For example, suppose you have one Roth IRA in your name, and you have made $15,000 in nondeductible contributions to it. That is your basis. When you liquidate the account you receive $7000. You then subtract $7000 from $15000 to find your tax loss, which is $8000. Refer to the IRS Web site, www.irs.gov/publications/p590/ch02.html#en_US_publink10006539, for additional information about deducting losses from a Roth IRA.

A 401(k) account is treated similarly to a traditional IRA in that you cannot deduct the losses unless it was funded with after-tax dollars. However, if you have more than one 401(k), you would not be required to liquidate them all in order to take the tax deduction.

There are several issues to consider before liquidating a retirement account in order to deduct its losses from your taxes. First, if you have more than one type of IRA, it may not be worth liquidating profitable IRAs in order to claim the deduction for a poorly performing account. Also, if you converted a traditional IRA to a Roth IRA, you will owe a 10 percent penalty on those funds if:

--  you liquidate the IRA,

--  you are under 59-1/2 and

--  it has been less than 5 years since the conversion.

IRA losses are listed on your 1040 form as itemized miscellaneous deductions, and after all of these are totaled, only the amount that is over 2 percent of your adjusted gross income (AGI) can be deducted. Individuals with high incomes might lose part of the deduction due to phase out rules. Finally, if you are hit with the alternative minimum tax (AMT), you will lose the deduction.