I read your monthly tip on converting traditional IRA to Roth IRA in 2010 to make tax free withdrawals later on. Our income is over the deductible limit. My present IRA is worth more than the non-deductible contributions. The question is, if I transfer the funds to ROTH IRA, can I offset any captial gains with capital losses from prior years, or are IRA transfers considered differently? 2008 for us saw a big capital loss and the timing to transfer funds to a Roth IRA may be just right to do it essentially tax free. THanks

Zip Code: 02445

I hope you found the article informative.

Unfortunately, IRA money is seen differently than your taxable investments. If your IRAs are worth less than the non-deductible contributions you made over the years, you do get to claim the loss in value. But you don't claim this as a capital loss that you get to carryover indefinitely. Instead, you claim this loss as a Miscellaneous Itemized Deduction.

The problem is that Miscellaneous Itemized Deductions are only allowable to the extent they exceed 2% of your income, and then are disallowed if you are in the AMT.

Even so, based on the fact that your IRAs are worth less than your non-deductible contributions made over the years, converting most likely makes sense for you.

Zip Code: 01801