Can You Deduct 401(k) or IRA Losses? What Changed for 2026
Losses inside a 401(k), traditional IRA, or Roth IRA generally can't be deducted on your tax return — and a 2025 law permanently closed the one narrow exception that used to exist. Here's how retirement-account losses actually work, compared to a taxable brokerage account.
If your 401(k) or IRA is down and you’re wondering whether that loss does anything for you at tax time: it doesn’t. Losses inside a traditional IRA, Roth IRA, or 401(k) generally cannot be deducted on your tax return, in contrast to a taxable brokerage account where a loss can offset gains and up to $3,000 of ordinary income every year. That’s been true in practice since 2018, and as of the 2026 tax year, it’s true permanently — a narrow pre-2018 exception that some people were hoping would come back has instead been closed for good.
This is a genuinely different question from the crypto and stock tax posts already on this site, because the account wrapper — not the asset inside it — is what decides the answer here.
This is general educational information, not tax or legal advice. Retirement account rules are complex and this article covers U.S. federal treatment only. Talk to a qualified tax professional about your specific situation before acting on anything below.
Why retirement account losses were never simply deductible
A traditional IRA or 401(k) grows tax-deferred — you didn’t pay tax on the way in (for most contributions) and you won’t pay tax on gains until you withdraw. A Roth IRA or Roth 401(k) grows tax-free on both ends. In both cases, the IRS’s logic is consistent: if it doesn’t tax the gains while they’re inside the account, it also doesn’t let you deduct the losses while they’re inside the account. You never had a “taxable event” to begin with — not on the way up, and not on the way down.
This is different from a taxable brokerage account, where every sale is its own taxable event. Sell a losing position there and you’ve realized a capital loss the IRS recognizes immediately, which is the entire premise behind tax-loss harvesting.
The exception that used to exist — and is now gone
Before 2018, there actually was a narrow way to claim retirement-account losses. If you closed out every IRA of one type (all your traditional IRAs, or all your Roth IRAs) and the total amount you got back was less than your after-tax basis in those accounts, you could deduct the shortfall — but only as a miscellaneous itemized deduction subject to the 2% of AGI floor, meaning only the portion of your combined misc. deductions exceeding 2% of your adjusted gross income actually counted.
For most people this rule mattered less than it sounds like it should, for two reasons: it required fully liquidating every account of that type (partial closures didn’t count), and traditional IRA contributions are usually pre-tax, so there was often little or no after-tax basis to have a deductible loss against in the first place. Roth IRA owners, who contribute after-tax dollars, were the ones most likely to actually benefit.
The Tax Cuts and Jobs Act suspended this deduction, along with the rest of the 2%-floor miscellaneous itemized deductions, for tax years 2018 through 2025. Because that suspension had a scheduled expiration date, some tax planning content written before mid-2025 assumed it would simply snap back in 2026. It didn’t. The One Big Beautiful Bill Act, signed into law in 2025, made the repeal of 2%-floor miscellaneous itemized deductions permanent for tax years beginning after December 31, 2025 — the current tax year. If you were holding out hope this deduction would quietly return once the TCJA sunset hit, it’s worth updating that assumption before you file.
Taxable brokerage vs. retirement accounts: how losses actually work
| Taxable brokerage | Traditional IRA / 401(k) | Roth IRA / Roth 401(k) | |
|---|---|---|---|
| Loss deductible while account stays open? | Yes, in the year you sell | No | No |
| Loss deductible on full account closure? | N/A (already deductible on sale) | No, since 2026 (permanently repealed) | No, since 2026 (permanently repealed) |
| Can offset other capital gains? | Yes | No | No |
| Can offset up to $3,000 of ordinary income/year? | Yes | No | No |
| Unused loss carries forward? | Yes, indefinitely | No | No |
| Wash sale rule relevant? | Yes, directly | Only as the repurchasing account in a cross-account wash sale (see below) | Only as the repurchasing account in a cross-account wash sale (see below) |
The practical takeaway: if you want the tax-loss-harvesting playbook covered in Tax-Loss Harvesting for Crypto or Your Crypto Loss Is Bigger Than This Year’s Deduction to actually apply, the loss has to happen in a taxable account. A loss sitting inside a 401(k) or IRA isn’t eligible for any of that, no matter how large it is or how long you carry it.
The trap: your IRA can kill a loss in your taxable account
There’s one place where your retirement account and your taxable account interact on losses, and it goes the opposite direction from what most people expect. Under IRS Revenue Ruling 2008-5, if you sell a stock or security at a loss in a taxable account and your IRA (or Roth IRA) buys a substantially identical position within the usual 30-day wash-sale window, the loss is disallowed — the same as any other wash sale.
But it’s worse than a normal wash sale. Normally, a disallowed loss isn’t gone — it gets added to the cost basis of your new shares, so you eventually recover the tax benefit when you sell the replacement position. When the repurchase happens inside an IRA, that basis adjustment doesn’t happen. The IRS is explicit that your IRA’s basis isn’t increased by the disallowed amount, which means the loss is permanently forfeited, not deferred. You lose the deduction and never get it back.
This means the boring-sounding advice to keep your brokerage and retirement accounts’ trading activity mentally separate is actually load-bearing: if you’re harvesting a loss in a taxable account this year, make sure neither you nor your IRA rebuys the same or a substantially identical position anywhere for 30 days on either side of the sale. Does the Wash Sale Rule Apply to Crypto? covers the general mechanics of the rule if you need the fuller picture.
A worked example
Say you have $40,000 in a taxable brokerage account and $40,000 in a traditional 401(k), both invested the same way, and both are down 30% — an $12,000 loss in each.
- Taxable account: You can sell, realize the $12,000 capital loss, use it to offset any capital gains elsewhere this year, deduct up to $3,000 against ordinary income, and carry the rest forward indefinitely until it’s used up.
- 401(k): The $12,000 loss is real in the sense that your balance is genuinely smaller, but it produces zero tax deduction, this year or any year, no matter what you do — sell within the account, hold, or even close it out entirely. The only way that $12,000 does anything for your taxes is indirectly, if it changes your income in the year you eventually withdraw in retirement.
Same dollar loss, same percentage drop, completely different tax outcome — purely because of which account it happened in.
What you can actually do about a down retirement account
Since a deduction isn’t on the table, the moves that are actually available are about timing and structure, not loss-harvesting:
- Don’t try to force a workaround. Distributing a losing position out of a traditional IRA before retirement age typically triggers ordinary income tax on the distribution and a 10% early-withdrawal penalty — on top of the loss you already have. That turns a bad outcome into a worse one.
- Consider a Roth conversion while the balance is depressed, if it fits your broader tax picture. Converting a traditional IRA or 401(k) balance to Roth is taxed on the dollar value converted at the time of conversion. A lower balance means a lower conversion tax bill for the same number of shares — so if you expect a recovery, you’re moving more of that future recovery into tax-free territory for less tax paid today. This has real tradeoffs (you generally need outside funds to pay the conversion tax, and it only helps if you’re not in an unusually high tax bracket this specific year), so it’s worth modeling with a professional rather than doing on your own read of this article.
- Redirect your loss-harvesting energy to your taxable accounts, where it actually produces a deduction, and keep good records — see The Records You Actually Need to Claim a Capital Loss.
- Watch for the IRA wash-sale trap above any time you’re harvesting a loss in a taxable account and hold a similar position in a retirement account too.
FAQ
I closed out my Roth IRA at a loss this year. Can I deduct anything? No. The narrow rule that used to allow this — closing every IRA of one type and deducting the shortfall against your basis as a miscellaneous itemized deduction — was suspended for 2018 through 2025 by the Tax Cuts and Jobs Act, and permanently repealed starting with the 2026 tax year by the One Big Beautiful Bill Act. There’s no version of this deduction currently available, regardless of whether you close the account.
If losses in my 401(k) aren’t deductible, is there any tax benefit to a down market in my retirement account? The main one is a Roth conversion: converting a traditional IRA or 401(k) balance to Roth is taxed on the dollar value converted, so converting while your balance is depressed lets you move the same number of shares — and therefore the same future recovery — for a smaller current tax bill. That’s a timing benefit, not a loss deduction, and it comes with its own tradeoffs (you owe the conversion tax now, generally from outside funds), so it’s worth running past a tax professional before you act on it.
Does it matter which specific investments lost value inside my 401(k) or IRA? Not for this purpose. Whether the loss came from a single stock, a crypto fund, or a target-date fund inside the account, the account itself is what determines the tax treatment — not what’s held inside it. A loss in a diversified index fund inside your 401(k) and a loss in a single volatile stock inside the same account are treated identically: not deductible, either way.
Can I move a losing position from my IRA into a taxable account to claim the loss? No — moving an asset out of an IRA is a distribution, not a sale, and it’s valued (and potentially taxed, if it’s a traditional IRA) at its value on the date of the transfer. It doesn’t create a realized loss you can deduct, and if it’s a traditional IRA, pulling money out before retirement age typically triggers ordinary income tax plus a 10% early-withdrawal penalty on top of losing the position’s value. This doesn’t get you a deduction — it just adds a tax bill to the loss.