Losses on a closed-down Roth IRA can be claimed as a miscellaneous itemized deduction, subject to the 2%-of-AGI offset.  However, if you cash out that poorly-performing Roth within the first five years of its existence and haven't reached age 59 1/2 nor do you qualify for any other exception, you must pay a 10% penalty.  The 10% penalty is computed on the amount you cashed out less any annual contributions you made.

Source: The Kiplinger Tax Letter
        November 8, 2002