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URL:  http://boards.fool.com/more-ira-questions-10096823.aspx

Subject:  More IRA questions Date:  2/3/1998  9:42 AM
Author:  Respectable Number:  1603 of 75335

My understanding
of the taxes on converting the traditional IRA into a Roth IRA is that
one pays taxes on the increase in value of the investment, not what the
person contributed, so it seems to me it would make a difference whether one opens and deductible traditional IRA and then converts it to a Roth or opens a Roth to begin with. Say I
contribute $2K to a tradional IRA this year and take the tax break next
April for this (putting about $560 in my pocket, while still having $2K
in my IRA, saying it neither increases nor decreases in value). Then,
say in May, I convert it to a Roth IRA...my understanding is that if
there has been no dividends paid or capital gains made in the
investment, you owe the IRS nothing for doing this, and if there is an
increase in value, you owe taxes only on this increase, not the original
$2K invested. Perhaps I am understanding something incorrectly?
Has anyone ever heard that a minor can make an IRA (not education IRA, but
a Roth IRA or traditional IRA) contribution of up to $2K of their earned
income (income earned outside of the home)? I read this is a Dec. 1997
magazine and again yesterday in a Neuberger IRA packet, but when I asked a broker at a seminar a couple weeks ago, he pointed
out that the kid would need a W2 to prove his income (which one doesn't
get by running a lemonade stand and doing chores for neighbors) and that
in MD, it is illegal for a child to sign a legal document, so they
legally can't open an IRA, and both points seemed to make sense to me.
Plus, I had never heard of anyone under 18 being able to contribute to
an IRA prior to this Dec. magazine, so I wondered if it might have been
a new change made at the same time as the Roth and Education IRA were
passed.
All for now. Thanks again so much for your help!
Cordially,
Respectable
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