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I have about $40,000 in a deductible IRA established several years ago. Most of this consists of capital gains; my out-of-pocket investment was $6,000.

I was considering converting this to a Roth IRA, but I returned to school full-time last year and can't pay the tax on $40,000. Even spreading it over several years, I can't pay the tax on this year's portion.

Is the tax "off the top," or is the cap gain portion taxed as a realized gain? This matters to me because I just realized a loss that would offset it, if that's allowed.

Also: if I turn out to have any cash at all, I want to use it for IRA contributions for 1997 and 1998. My income is low enough that IRA contributions would be deductible. If I'm able to make an IRA contribution for 1998, should I make it deductible or Roth? I also have about $200,000 in a 403(b) plan, distributions from which will be taxable when I receive them (my contributions were by salary reduction).
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