Vanguard Backdoor Roth completed

[PhysicianOnFIRE]

For those of us using Vanguard, I took screenshots of the steps to complete a Backdoor Roth contribution:

Vanguard Backdoor Roth: a Step by Step Guide

Post includes links to other great resources on the topic, including WCI, Kitces, and The Finance Buff.

 

[Peds]

thanks. the more tutorials the better!

[DMFA]

Thx much.  I feel like I should have done this for Fido - was also very easy to do, nearly identical steps.  Just wish you could do it through the mobile app instead of having to go through the browser, but whatever, still easy enough. There is also a box to check asking them to leave the account open despite its having $0 in it - idk if this is automatic at Vanguard or not.

[PhysicianOnFIRE]

DMFA wrote:

There is also a box to check asking them to leave the account open despite its having $0 in it – idk if this is automatic at Vanguard or not.

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Vanguard doesn't give you the option, but they automatically leave it open, even with a Zero balance.

[artemis]

PhysicianOnFIRE wrote:

Vanguard doesn’t give you the option, but they automatically leave it open, even with a Zero balance.

Click to expand...

Vanguard will close an IRA with a zero balance eventually.  Unfortunately I found out about this the hard way; in the past I did my backdoor Roth early in the year, but in 2016 I waited until the end of the year to do it because a move and remodeling expenses had left me a bit cash-strapped.  To my dismay, when I logged in to my account to begin the process, my traditional IRA account was gone.  I had to open a new one (on Vanguard's new brokerage platform), and then convert my Roth IRA over to their brokerage platform as well, since Vanguard wouldn't allow a transfer from an account on their new brokerage platform to an account on their old one.  (And since it turns out to be a bit harder to do the conversion on their new brokerage platform, I was less than pleased!)

It's probably not a serious issue if you do your backdoor Roth the same time each year, but it is something to be aware of.

[PhysicianOnFIRE]

artemis wrote:

It’s probably not a serious issue if you do your backdoor Roth the same time each year, but it is something to be aware of.

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Good to know. I've done mine in January each year. It would be nice if Vanguard would notify you before closing the account or give the account more than 2 years of inactivity before being automatically closed.

 

[artemis]

That's what irritated me: no warning was given.  If Vanguard had given me notice that they were going to close my IRA, I could have put some money in the IRA to keep it open (if not the full amount for the later conversion).  I'd have happily paid a bit of tax on the subsequent Roth conversion to keep my IRA on the old Vanguard platform open!

[Dr P]

Could you guys help me with this question.  My significant other is in solo practice.  Her gross revenue in 2016 was greater than the Roth limit, but after subtracting expenses, she's under.  Would she be disqualified for the Roth and require the backdoor?

Thanks

[The White Coat Investor]

No. Business expenses are subtracted out before you get to your MAGI.

[PhD]

Just new to this. I tried the conversion based on the Step by Step description. I had to open both a traditional and a roth IRA at Vanguard. When I attempted to do the conversion, I could not add a different fund just move the VMMXX to the Roth. Does that sound right? Am i doing something wrong? Should I do move the fund and exchange in the Roth IRA later?  Also, instead of traditional IRA, the account I opened says traditional IRA brokerage. Thank you!

[VagabondMD]

PhD wrote:

When I attempted to do the conversion, I could not add a different fund just move the VMMXX to the Roth.

Click to expand...

Yes, that sounds correct.

PhD wrote:

Also, instead of traditional IRA, the account I opened says traditional IRA brokerage.

Click to expand...

That is correct, too.

[PhD]

Thank you very much for the quick reply!