Deduction on 401k loss on distribution

[sidvan]

i know that this topic has been covered in the forums as it relates to losses in value in non-taxed 401k accounts, my question concerns a taxable situation.

Last year I was "downsized". I had an outstanding loan against my 401k that was called due upon termination. I rolled over the balance of my existing 401-k plan into an IRA (thus liquidating the 401k) but elected not to repay the loan. It bacame taxable at that time. I declared the loan amount on my taxes.

Here's my quastion: The value of my 401k at time of liquidation was about 60% of it's value at the beginning of the year. When I liquidated tha account to roll it over to the IRA, it was worth significantly less than just a few months prior. That loan amount ($50k) was part of the value of the portfolio. Since I'm being taxed on the gross amount of the loan, should I not also be able to realize the loss?

Thanks!

[tranquility]

Great argument, I see your point. But, no.

[efflandt]

The basic premise is that you cannot take a tax deduction for loss of money that was never taxed. You never paid tax on 401k "contributions" or gain while it remained within the account.

And even if you had any non-deductible contributions in your IRA, the loan taken from the 401k was totally separate from that at the time the loan was initiated.