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Greetings, XtraFool, and welcome to Fooldom.

<<sorry for beating this to death but........... if you're planning to start a roth ira, wouldn't it make sense to
start this year? by making a $2000 taxable ira contribution in '97 to be converted to a roth on jan 1, aren't you essentially seeding the roth ira early? or do you have to spread the basis over the entire ira, and cannot just rollover the taxed portion? in other words, did i just screw up by recently rolling over a portion of my employee savings plan into my ira, thereby severely increasing my tax basis? up until then, 50% of my ira was previously taxed and now it's been reduced to less than 5%. looks like a big mistake.>>

Yes, seeding a new IRA with $2K this year, rolling that to a Roth next year, and adding $2K to the Roth next year makes sense. The taxes on the earnings of the $2K and even on the $2K itself (assuming it is a dedctile contribution this year) will be small, and it starts off the Roth with at least $4K from the "git go." That's a big plus for long term compounding.

As to the second part of your question, you will be taxed only on all deductible contributions and all earnings on an IRA you roll to a Roth. By adding your savings (retirement??) plan monies to the IRA, you have added to the amount that will be taxed. Whether that's good or bad only you can decide.


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