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In regard to your questions about paying the tax on your $2000.00 investment in an IRA:

The $2000.00 you invest in considered by the IRA as part of your income for the year that it represents, be it a 1998 or a 1999 contribution, and you pay taxes on the nondeductable portion of your IRA contribution for the appropriate year. See page 1 item 23 of your 1040.

You should also prepare, file and keep an annually updated form 8606 to keep track of your taxable and nontaxable amounts. That is your basis in your total IRAs.

The new forms also help you keep track of your Roths and any initial or converted amounts in these accounts.
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