How to perform the backdoor Roth on the Vanguard website?

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l1am
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How to perform the backdoor Roth on the Vanguard website?

Post by l1am » Mon Dec 12, 2016 2:08 am

- I have opened my tIRA and Roth IRA accounts.
- I have made a non-deductible contribution to the tIRA.

The wiki states:
Accomplish this transaction by selling the shares in your Traditional IRA and using the funds to buy shares (or open a new account) in a Roth IRA


When I try to select my Roth IRA in the buy/sell transfer page I get "You've reached your maximum annual contribution limit for this type of account.".

I'm going to call VG, but wondering if anyone knows. Do I 'convert' the tIRA to Roth, or actually transfer from the tIRA -> Roth.

l1am
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Re: How to perform the backdoor Roth on the Vanguard website?

Post by l1am » Mon Dec 12, 2016 2:12 am

Oh wait, I just discovered the: My Accounts > Buy & Sell > 'Sell Vanguard funds' page and looks like I can select it there "Exchange to another fund".

hightower
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Re: How to perform the backdoor Roth on the Vanguard website?

Post by hightower » Mon Dec 12, 2016 2:33 am

The way I've done it for the last several years (including this year), is to click on the link titled "convert to roth ira" at the top of the page of your traditional IRA. It will then lead you through the process. However, keep in mind it will usually take a couple of business days for the funds that you placed in your traditional IRA to be available for conversion.

jane1
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Re: How to perform the backdoor Roth on the Vanguard website?

Post by jane1 » Mon Dec 12, 2016 2:41 am

Wouldn't you use "Convert to Roth IRA" link?

Maybe it gets to the same screen ultimately...

l1am
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Re: How to perform the backdoor Roth on the Vanguard website?

Post by l1am » Wed Dec 14, 2016 1:56 am

jane1 wrote:Wouldn't you use "Convert to Roth IRA" link?
Maybe it gets to the same screen ultimately...


Ye, the link actually appeared after the amount had settled. So I did the conversion asap, and now I'm still left with this 5 cent?

I choose to "Convert all of the account", so not sure why this is leftover...

Image

jane1
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Re: How to perform the backdoor Roth on the Vanguard website?

Post by jane1 » Wed Dec 14, 2016 2:15 am

Look at transaction history... probably money market interest or dividend payout. Those pesky pennies keep showing up even after rollovers/transfers. For rollovers you can ask the custodian to do a sweep. Not sure how it works for conversions. Let us know what you find out.

Fidelity recentky mailed us $0.04 check from new dividends that showed up after complete IRA rollover to 401k! We need to figure out what to do with it.

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celia
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Re: How to perform the backdoor Roth on the Vanguard website?

Post by celia » Wed Dec 14, 2016 2:28 am

Whether you have a few cents left in the account (which is the dividends those shares earned but hadn't received until the conversion left the tIRA) or mailed to you, just call them up and let them know of the cents, and they will take care of moving it to the Roth for you. The nice thing about cleaning up the "check problem" is that you will not have to do anything about the check. They will void it on their end and you will just need to tear it up after the cents get into the Roth.

Hope this makes SENSE!

l1am
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Re: How to perform the backdoor Roth on the Vanguard website?

Post by l1am » Thu Dec 15, 2016 7:10 pm

celia wrote:Whether you have a few cents left in the account (which is the dividends those shares earned but hadn't received until the conversion left the tIRA) or mailed to you, just call them up and let them know of the cents, and they will take care of moving it to the Roth for you. The nice thing about cleaning up the "check problem" is that you will not have to do anything about the check. They will void it on their end and you will just need to tear it up after the cents get into the Roth.

Hope this makes SENSE!


So now there's $5500.05 in the Roth. So I should call them to void the 5 cents? Technically I guess I own tax on the 5 cents.

Saphomd
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Re: How to perform the backdoor Roth on the Vanguard website?

Post by Saphomd » Thu Dec 15, 2016 7:50 pm

If you dont call them about the 5 cents, then are you not over the max limit? (5500 under age 50).

jane1
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Re: How to perform the backdoor Roth on the Vanguard website?

Post by jane1 » Thu Dec 15, 2016 7:56 pm

l1am wrote:
So now there's $5500.05 in the Roth. So I should call them to void the 5 cents? Technically I guess I own tax on the 5 cents.


You will get a 1099-R in the next 2 months. If it says $5500.05 (Box 1), you enter that on your tax return. Your basis will be $5500 (or whatever is your after-tax contributions from Form 8606). So technically you would owe taxes on the $0.05. All tax software will round it down, so it becomes irrelevant. If you converted $5520, you would owe tax on $20. So Form 1040 Line 15a will be $5520 and Line 15b (Taxable amount) will be $20. This will then be added to your other sources of income to calculate your AGI and ultimately taxes.
Makes sense?

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celia
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Re: How to perform the backdoor Roth on the Vanguard website?

Post by celia » Fri Dec 16, 2016 12:03 am

Saphomd wrote:If you dont call them about the 5 cents, then are you not over the max limit? (5500 under age 50).

No. We're talking about conversions which have unlimited amounts, not contributions which are limited to $5,500/6,500. The $5,500 limit applied when it was contributed to the traditional IRA. But the account grew before it was converted to Roth. The IRS is very specific about the vocabulary it uses, so we should be too. Thanks for asking as others will be confused too. :happy
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.

l1am
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Re: How to perform the backdoor Roth on the Vanguard website?

Post by l1am » Mon Apr 03, 2017 1:57 am

jane1 wrote:You will get a 1099-R in the next 2 months. If it says $5500.05 (Box 1), you enter that on your tax return. Your basis will be $5500 (or whatever is your after-tax contributions from Form 8606). So technically you would owe taxes on the $0.05. All tax software will round it down, so it becomes irrelevant. If you converted $5520, you would owe tax on $20. So Form 1040 Line 15a will be $5520 and Line 15b (Taxable amount) will be $20. This will then be added to your other sources of income to calculate your AGI and ultimately taxes.
Makes sense?


You were right, this is exactly what happened. It was $5500.05 and the software rounded down.

Looks like for the 2017 rollover, I'm left with $0.44 in my traditional IRA and it didn't sweep out like last year. Should I just convert this to Roth now too?

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