Getting Started: back to back Roth\'s

[Johnny RN]

Wife finished fellowship last summer and we spent the fall getting caught up a little on the things that needed to be squared away. We want to deal with our IRA's, can I put our 11k into a vtsmx from 2017, and one for 2018 (both this month), then convert to a vtsax or will this automatically happen when we hit the 10k mark? Trying to read as much as I can on this to self educate, bought the wci book, but we are new to this. We are both in lower 30's with some other money we have tried to invest along the way, so if anyone has an input for a better option to let ride until retirement, I am all ears! Thanks.

[WallStreetPhysician]

Johnny RN wrote:

Wife finished fellowship last summer and we spent the fall getting caught up a little on the things that needed to be squared away. We want to deal with our IRA’s, can I put our 11k into a vtsmx from 2017, and one for 2018 (both this month), then convert to a vtsax or will this automatically happen when we hit the 10k mark? Trying to read as much as I can on this to self educate, bought the wci book, but we are new to this. We are both in lower 30’s with some other money we have tried to invest along the way, so if anyone has an input for a better option to let ride until retirement, I am all ears! Thanks.

Click to expand...

Assuming you haven't contributed for 2017, why not contribute 5,500 in 2017 and 2018 to your and you're wife's accounts (11k each, 22k total), then buy VTSAX? You can contribute to both at the same time in this January 1 to April 15 period (assuming you didn't contribute to the account in calendar year 2017). Unfortunately I don't have a Vanguard account, but Fidelity lets you check which year you are applying a Roth IRA contribution.

Let us know if you have any other questions.

-WSP

 

[jhwkr542]

Per Vanguard's website, they say they periodically review investor shares for people eligible for admiral class.  I'd just do it yourself though.  Instructions from Vanguard's website attached.

[cgossage]

You can do it that way, but I agree with WallStreetPhysician.  Contribute $5,500 for each of you for both 2017 and 2018, convert to a Roth (assuming you have no other IRA or SEP accounts) and then buy VTSAX.  In the future though, it is fairly easy to update to Admiral shares on Vanguard's website if a similar situation ever comes up.

[Johnny RN]

Thanks guys, I guess I didn't communicate that well enough. Yes, I meant put 11k in for 2017, and an additional 11k for 2018 to get to the 10k minimum each for vtsax. I will basically buy vtsmx first and then switch it over to the vtsax though? I just didn't know how this would work doing it all at once never having done either before. Once it's converted to a roth it's just a matter of switching it over to a vtsax then?

[cgossage]

Johnny RN wrote:

Thanks guys, I guess I didn’t communicate that well enough. Yes, I meant put 11k in for 2017, and an additional 11k for 2018 to get to the 10k minimum each for vtsax. I will basically buy vtsmx first and then switch it over to the vtsax though? I just didn’t know how this would work doing it all at once never having done either before. Once it’s converted to a roth it’s just a matter of switching it over to a vtsax then?

Click to expand...

That makes sense, but there isn't really any reason to buy vtsmx.  The 2017 and 2018 contributions will both be in the same account even though you are picking different years when you contribute the funds.  The Roth Conversion for both contributions will take place in the 2018 tax year.  Make both contributions, convert to a Roth, and then you can use the 11k within each account to buy vtsax.