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| Subject: More IRA questions | Date: 2/3/1998 9:42 AM | |
| Author: Respectable | Number: 1603 of 72282 | |
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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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