Multiple IRA accounts with Vanguard

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AQ
Posts: 443
Joined: Mon Feb 25, 2008 11:38 pm

Multiple IRA accounts with Vanguard

Post by AQ » Wed Jul 11, 2018 12:34 am

I have two IRA accounts with Vanguard. In earlier years, my contribution was tax-deductible; later I wasn't qualified for tax deduction but I continued to make non-deductible contribution. So I have two accounts to keep track of them separately. Each account keeps a few funds there.

Today I got my Q2 statements, and was surprised to note that Vanguard moved one fund from one IRA to the other IRA. My total balance is correct, but now one IRA account has both deductible and non-deductible contributions. Does it really matter when it comes to distribution time, or should I contact Vanguard to sort it out?

Thanks!

Namille5
Posts: 2
Joined: Wed Jul 11, 2018 1:37 am

Re: Multiple IRA accounts with Vanguard

Post by Namille5 » Wed Jul 11, 2018 2:15 am

Hi AQ,

What type of accounts are the two you have open with Vanguard? If one is a Roth and another is a traditional, then rolling over traditional IRA funds (pre-tax) to the Roth IRA (post-tax) will cause those funds to be taxed in the year the roll-over was made (also known as a “backdoor” Roth IRA). The good news is there will be no 10% withholding since you are keeping them in IRAs. Depending on the size of the rollover, however, it may bump you into a higher tax bracket, thus creating a larger tax liability.

Needless to say, I would probably call and get it squared away. No need to intermingle two different types of contributions if you already have the two accounts established.

I hope that helps. :happy

bondsr4me
Posts: 860
Joined: Fri Oct 18, 2013 7:08 am

Re: Multiple IRA accounts with Vanguard

Post by bondsr4me » Wed Jul 11, 2018 5:51 am

AQ wrote:
Wed Jul 11, 2018 12:34 am
I have two IRA accounts with Vanguard. In earlier years, my contribution was tax-deductible; later I wasn't qualified for tax deduction but I continued to make non-deductible contribution. So I have two accounts to keep track of them separately. Each account keeps a few funds there.

Today I got my Q2 statements, and was surprised to note that Vanguard moved one fund from one IRA to the other IRA. My total balance is correct, but now one IRA account has both deductible and non-deductible contributions. Does it really matter when it comes to distribution time, or should I contact Vanguard to sort it out?

Thanks!
I would contact VG to get this straightened out, otherwise, when you start taking distributions your tax return is gonna get a bit more complicated for YOU.
It’s best to keep non-deductible accounts separate to keep it simple for distribution time.
Have a great day
Don

Spirit Rider
Posts: 8113
Joined: Fri Mar 02, 2007 2:39 pm

Re: Multiple IRA accounts with Vanguard

Post by Spirit Rider » Wed Jul 11, 2018 8:44 am

bondsr4me wrote:
Wed Jul 11, 2018 5:51 am
I would contact VG to get this straightened out, otherwise, when you start taking distributions your tax return is gonna get a bit more complicated for YOU. It’s best to keep non-deductible accounts separate to keep it simple for distribution time.
I agree that Vanguard should never have done this and it should get straightened out. However, it is irrelevant whether the non-deductible assets are in their own account or not.

All pre-tax balances in all traditional, SEP and SIMPLE IRA accounts on 12/31 of the year you do a Roth conversion are included on Form 8606 line 6 and subject to pro-rata taxation. Having the non-deductible basis in a separate account changes nothing.

If the OP has a 401k, 403b or governmental 457b plan, that accepts IRA rollovers. They should rollover all pre-tax IRA balances to that plan. This will leave just the non-deductible basis which can then be converted to a Roth IRA with little to no tax liability. Then the path is clear to do tax efficient Backdoor Roths every year.

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