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<<Thanks for previous reply. A followup. Say I open and fund a traditional IRA tomorrow with 2K, designate the money as my '97 contribution, then roll it into a Roth. I had believed that I was then free to contribute up to an additional 2K to the Roth any time during the rest of '98 (or officially up until 4.15.99). I thought this course advantageous to the extent I'd have a quick 4K stashed toward retirement this year, growing in Foolish 4 selected stocks.

I read, however, in my Roth account terms and conditions statement that no contributions other than IRA Conversion Contributions made during the same tax year will be accepted into the Roth. So the rollover counts as my '98 Roth contribution. This worries me. Does my next earliest contribution date then become the '99 tax year? If so, am I misguided about my idea to first establish and fund a traditional IRA, since the imagined benefit of doing this (beefing up my IRA to 4K) turns out not to be allowable?>>

The IRS in December issued a model agreement for Roth providers containing language that makes such accounts either one for IRAs converted in the same year or for annual contributions. Specifically excluded were commingled monies from both sources in the same account. In theory you could have a Roth for annual contributions, another for IRAs converted in 1998, a third for IRAs converted in 1999, etc. In its guidance, the IRS strongly recommended this procedure be followed due to the withdrawal precedence contained in the technical corrections pending in Congress. Those corrections specify that when money is withdrawn from a Roth the presumption will be the first money out is 1998 converted IRA, the next is 1999 or later converted IRA, and the last is annual contributions. If the money hasn't been in the account for at least five years, 1998 conversions are penalized at a 20% rate for early withdrawal, 1999 or later conversions at 10%, and contributions not at all.

Separate accounts for these monies clearly establishes what kind of money is being taken at withdrawal and how long it has been in the account. It makes everyone's administrative task a little easier for tax purposes. It does, though, mean you end up with the pain of two or more accounts if you wish to ensure you start off with $4K in the Roth IRA vehicle in 1998 because your $2K deposit for a 1997 regular IRA will be in a different account on conversion than your $2K annual contribution. Presumably five years from now you can merge the two accounts, but until the IRS puts out the final guidance, I can't guarantee that. Thus, you can still get $4K in your Roth in 1998, but you can't do so in the same account.

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