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I talked with the IRS on Monday. Here is what they said. I should ignore Part I of Form 8606 in my case because I had not had any nondeductible contributions before. I should then fill in Part II. Enter the total amount rolled from the traditional IRA into the new Roth. Then this amount will get split into fourths and taxed over the four years.

Note: I haven't made any nondeductible contributions to the traditional IRA before and after talking to the IRS, I did not in 98 either. Hence, line 15 of 8606 would be 0 after all. Surprise to me...

The operator then suggested the next step, and I had figured it out on my own: when you have the taxable amount to plug into the 1040 form from the rollover, you can then use this to find your modified adjusted gross income. THIS can be used in the IRA deduction worksheet to find the deductible portion of your contributions for 98 to enter on the IRA deduction line in the 1040. And then you only get taxed once on your income.

Seems strange, but I am getting a tax break and a tax on rollover in the same year. I thought it would be easier than this...

Thanks guys.
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