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Wanting to open a Roth IRA at Vanguard

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  • Wanting to open a Roth IRA at Vanguard

    Warning, I am new to all this DIY financial thing, which I am excited about doing.

    I have a roth IRA through AMERICAN FUND that was started by a financial advisor. However, I want to move on from the FA and do it on my own.

    After reading, I want to transfer my Roth IRA to Vanguard. Any tips?

    My new job has a SIMPLE IRA for me to contribute to. I just started my job this month as an attending finally.

    I would love to get anyone's tips or advice before I do this.

    TIA

  • #2
    Call vanguard. They will move it for you. Try not to talk to American.

    The simple will deny you a backdoor Roth

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    • #3
      Thanks.

      Because I was a resident until June and just started my job this month, I believe I will qualify for a roth IRA this year. I am single.

      I am sad though that I can't get a back door roth IRA because of my job's SIMPLE IRA.

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      • #4
        Also, I moonlighted during residency this year and thus, will get a 1099. With that money, which retirement fund should I open other than Roth IRA? Should I also open another account SEP IRA?

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        • #5
          No a solo 401k might be better.

          Comment


          • #6
            Thanks Peds.

             

            I just opened a ROTH IRA with Vanguard, and put 100% of it into VTSMX.

             

            I hope I am doing this right.

            Comment


            • #7




              Thanks Peds.

               

              I just opened a ROTH IRA with Vanguard, and put 100% of it into VTSMX.

               

              I hope I am doing this right.
              Click to expand...


              Great - Is the money in it new money? or are these the dollars rolled over from American? If not rolled over, call Vanguard and they'll walk you through rolling it over into this account.

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              • #8




                Also, I moonlighted during residency this year and thus, will get a 1099. With that money, which retirement fund should I open other than Roth IRA? Should I also open another account SEP IRA?
                Click to expand...


                I would recommend establishing a Solo 401(k). However, keep in mind the $18,000 salary deferral limit is for all plans, not per plan.

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                • #9
                  You need a plan.

                   

                  https://www.whitecoatinvestor.com/investing/you-need-an-investing-plan/
                  Helping those who wear the white coat get a fair shake on Wall Street since 2011

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                  • #10




                    Also, I moonlighted during residency this year and thus, will get a 1099. With that money, which retirement fund should I open other than Roth IRA? Should I also open another account SEP IRA?
                    Click to expand...


                    So glad to see that little piece of information! One big difference between a SIMPLE and a 401k is that the account is yours to do with what you wish, including employer contributions. Given that, you are in a good position for a backdoor Roth in 2 years. Here's what to do:

                    1. Open your SOLO-k before 12/31/17 and contribute to it for 2017.

                    2. Make nondeductible TIRA contributions of $5,500/yr in 2018 and 2019. You don't want to lose a year of contributions and this won't affect your taxes.

                    3. After you have participated in the SIMPLE for 2 years, you are eligible to roll the balance out to your SOLO-k, penalty-free. (If you do it any sooner, you will be socked with a 25% penalty.) Do this just before 12/31 so your balance will be zero at 12/31.

                    4. Convert your balance in the nondeductible TIRAs in the same year you are rolling over the SIMPLE.

                    5. Going forward, you can accomplish a backdoor Roth annually, just like anyone else, as long as you empty your SIMPLE out each year before 12/31 (timing so that you will have no contributions between the rollout and 12/31).


                    Explaining Backdoor Roth IRAs
                    Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

                    Comment


                    • #11
                      I concur with the recommendations to open a one-participant 401k. I would also add that you want to open this at a provider that accepts rollovers from other retirement accounts. The reason will become apparent when I discuss the Simple IRA.

                      Vanguard's Individual 401k plan does not allow incoming rollovers. Fidelity's Self-Employed and some other one-participant 401k plans do accept incoming rollovers. As stated previously, the employee deferral limit (2017 = $18K) is across all qualified plans including SIMPLE IRA, 401k, and 403b plans.

                      You should be sure to sign up and make employee deferrals to the SIMPLE IRA ASAP. This is because there is a two (2) year period from the date of first contribution, where you can only rollover to another SIMPLE IRA. After, the two (2) year period has elapsed, you can rollover to a traditional IRA, 401k, etc...

                      You need to find out whether your SIMPLE IRA has a Designated Financial Institution (DFI) or allows you to open your own SIMPLE IRA at the custodian of your choice. The former is far more common than the latter. My experience is that the majority of DFI plans have horribly expensive investment options.

                      However, there is a work around. If you have a DFI plan, the plan must allow you to designate a no cost (usually a MMF) target for your contributions and must allow you to rollover those contributions at least monthly, but only to another SIMPLE IRA during the first two (2) years. Vanguard and other providers will allow you to open a rollover only SIMPLE IRA for this purpose. Vanguard calls theirs a frozen SIMPLE IRA.

                      Normally, a DFI plan is considered the less optimal situation. However, in the case of someone who would like to do a Backdoor Roth, it provides a viable option. After two (2) years you can rollover all balances and future contributions to the one-participant 401k to enable a no/low cost Backdoor Roth. There may be situations where the last contribution of the year occurs does not leave time to roll it over. In that case you just end up with a small portion of the conversion being taxable, no big deal.

                      You will have to coordinate your employee deferrals between the one-participant 401k and the SIMPLE IRA. For 2017, the SIMPLE IRA employee deferral limit is $12,500 and the 401k/total employee deferral limit is $18,000. If you make the maximum SIMPLE IRA employee deferral, you will have $18,000 - $12,500 = $5,500 left to make to the 401k.

                      You have until 12/31 to adopt a one-participant 401k and make a written employee deferral election. The providers usually provide their own form, but they usually just allow the selection of a lump sum, contribution percentages or per pay period which is only applicable to W-2 shareholder-employees of an S-Corp.

                      You will want to do a custom one with something like; "The employee deferral limit - employee deferrals to other plans. You have until your tax filing deadline including extensions to make the employee deferral and employer contributions. This allows you to make sure you know what the SIMPLE IRA deferral for the year is before making the 401k deferral.

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                      • #12
                        WOW. Thank you everyone for giving me such good advice.

                        I do not have a 401k so no need for a rollover correct?

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                        • #13




                          WOW. Thank you everyone for giving me such good advice.

                          I do not have a 401k so no need for a rollover correct?t
                          Click to expand...


                          Yes, you do need to open a 401k - a SOLO-401k. This is a 401k with 1 participant only (2, if your spouse is participating). The reporting rules are simpler than for a traditional 401k, which is a big advantage for you. Opening one will allow you to make a contribution based on your net moonlighting income and r/o your SIMPLE account balance in 2 years.

                          I am concerned you do not understand the sequence of events and relationships between the accounts - yes or no? Let us know so we can fill in the blanks.
                          Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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