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Let us take the case of a child whose earned income during 1997 falls below $6,500, but exceeds $2,000. Next, let us suppose that a parent of this child opens a conventional IRA in the child's name for $2,000 during 1997. According to the definition of IRA deductibility, this IRA is a "deductible" IRA, because the child's AGI is well below the lower end of the AGI limit of $30,000. But, in point of fact, the child has no taxable income to declare for 1997, and, therefore, cannot take the IRA investment as a deduction.

Follow me so far? O.k., now, suppose that the parent of this child rolls over this IRA into a Roth IRA after January 1, 1998. Can this rollover be treated as the rollover of a "non-deductible" IRA, meaning that only dividends, interest, and capital gains would be taxed? Or, would the original contribution to the 1997 IRA also be subject to taxation?
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