NO .... you cannot net cap losses directly against ORDINARY income ... ALL distributions from the IRA are treated as ordinary income. All you can do is net cap gains against any cap losses that you have and then you are limited to no more than $3000 of cap loss against ordinary income per tax year. If you sell no stock this year but convert the $60K to a roth you will pay taxes at an ordinary income tax rate on $17K ( $20K - $3000) and the rest of the $47K loss is carried forward to the next tax year.
You have to stop thinking that any of the earnings in the IRA are capital anything even if you were invested in the stock market. What happened inside an IRA has no bearing on the tax treatment of the distributions. That is the deal with IRAs... they are called tax shelters for a reason ... you put ordinary income in it today and avoid ordinary income taxes on that contribution AND the earnings are sheltered from taxes as long as they stay in the IRA HOWEVER once you take any distributions (after the basis is considered on the non deductible contributions) they are ALL taxed as ORDINARY income.
