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I opened a traditional ira with $2,000 in 1999 during 1/1/2000 - 4/15/2000. To this I added $2,000 for 2001 and $5k from a 401k rollover. Then I converted the entire lot (9,000) to a roth in 2000.

I assume the second contribution was for the year 2000, not 2001.

Would I have been better off opening a roth ira with the two cash contributions ($4,000), shuttling the 401k rollover to a traditional ira, then converting the rollover money ($5,000) to a roth? Or do I come out about equal, since I can deduct the two $2,000 contributions?

It depends. If the contributions lost money before the conversion, you're better off having done it the way you did. You get the full benefit of the $4,000 in deductions, but pay tax on only the amount converted. If they gained money before conversion, you would have been better off with contributing directly to the Roth, or recharacterizing the traditional contributions as Roth, because you'd pay no tax on the earnings.

You can still recharacterize the year 2000 contribution. There would probably be some fees from the custodian, but if there have been significant earnings on the year 2000 contribution, it could be worth it.

Phil Marti
VITA Volunteer
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