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Greetings, TchrP, and welcome.

<<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).>>

If you cannot pay the income taxes due on the conversion of the IRA to a Roth IRA, then DO NOT do it. You are better off staying in the deductible IRA. The entire amount will be taxed at ordinary rates, and if you take it from the proceeds of the IRA you are converting, it will cost you big time.

As to contributions, that depends on a number of factors. In general, if you will make a full $2K deposit to the Roth, then you will be better off doing that. But before you decide, I suggest you go back in this folder to 1/31/98 and read the thread under the subject "Roth Contributions and Conversions." It will give you some examples and thoughts you may find helpful. After you have read those, ask any other questions you may have.

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