Gotchas for Backdoor Roth AFTER Transfer to Vanguard?

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Elbowman
Posts: 478
Joined: Tue Apr 03, 2012 2:25 pm

Gotchas for Backdoor Roth AFTER Transfer to Vanguard?

Post by Elbowman » Wed Feb 15, 2017 7:13 pm

Hi Bogleheads,

I have two related questions:

1) I got married this year, and I'd like to transfer my wife's investments accounts from Capital One to Vanguard. I had planned on doing this after I did a backdoor conversion for this tax year (at Capital One), because it seemed like there would be fewer complications with basis if everything was in a Roth when we transferred to Vanguard. However, to do a backdoor conversion with Capital One requires faxing them a notarized form. That will be a pain in the butt, so I am reconsidering my plan.

If I transfer the tIRA to Vanguard first, will there be any hiccups when I try to do the backdoor conversion there? The one thing I can think of is Vanguard might not know the basis, and I might not get sent the right tax documents to do our taxes. This leads be to my second question:

2) Can I get in trouble if I mislead the IRS in a way that intentionally overpays taxes? By looking at her contributions I should be able to figure the approximate basis, and I wouldn't mind then lowering that basis by a few hundred dollars if it guarantees I am not cheating the IRS and it lets me make a clean break from her financial past :) .

Complicating things is the fact that I don't think Capital One knows the correct basis at this point. We had to recharacterize her Roth IRA to a tIRA after we got married (our combined income was now too high), and the calculation was complicated because she had been investing monthly for most of 2016. Capital One wasn't able to help me on the phone, and eventually they told me to send them the form (again a notarized fax) without the specific recharacterization amount and instead with "AS NEEDED" written in that field. And when I looked at her account balance after the transaction something seemed off. Unfortunately I don't remember if the number was suspiciously round or suspiciously NOT round, but I do remember thinking to myself "I don't think they actually did the work here."

Thank you!

skinhealer
Posts: 47
Joined: Mon Sep 01, 2014 3:41 pm

Re: Gotchas for Backdoor Roth AFTER Transfer to Vanguard?

Post by skinhealer » Wed Feb 15, 2017 7:28 pm

I have done this since the past few yrs with vanguard and had no issues at all.

My wife has fidelity which gave much more of issues. Non-technical issues, they take a very long time to process it as compared to vanguard.

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Earl Lemongrab
Posts: 4687
Joined: Tue Jun 10, 2014 1:14 am

Re: Gotchas for Backdoor Roth AFTER Transfer to Vanguard?

Post by Earl Lemongrab » Thu Feb 16, 2017 5:25 pm

TIRA custodians don't keep track of basis because they don't know whether you deduct any of the contributions. That's between you and the IRS. You need to properly file form 8606 to record the basis there.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

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