- Thinking that perceived investment losses are the same as tax losses; and
- Failing to understand that any withdrawal from an IRA, 401(k), or 403(b) will always be treated as ordinary income.
By Rick Law, Estate, Asset & Retirement Tax Attorney at Law Elder Law in Western Chicagoland. It’s a statement I used to hear all too regularly at the height of the recession. Clients coming into my office would lament, “We have lost so much in our mutual funds that I should just sell EVERYTHING and start over.” I would ask, “How do you know that you have a taxable loss?” Typically, the answer was something along the lines of, “Everybody knows that the whole market is down by at least 40%! That’s how I know.” The markets are arguably in a better place than even a couple years ago, but still, many people are panicking and making the same big mistakes in dealing with investment losses. The two main errors made are: