Backdoor Roth - which fund to use for initial IRA contribution?

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Wiired
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Joined: Sun Jun 21, 2009 10:28 am

Backdoor Roth - which fund to use for initial IRA contribution?

Post by Wiired » Sat Sep 08, 2018 4:14 pm

Hello
I have been doing door backdoor Roths for the last several years. I would initially put the money into Vanguard's money market fund in the traditional IRA, and then transfer it to the Roth.
However last year the money market fund actually generated just a little bit of interest before the conversion ($1, but still).
So I am wondering what suggestions fellow Bogleheads may have in terms of which fund to put the initial traditional IRA investment into.
Thanks for any advice

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White Coat Investor
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Re: Backdoor Roth - which fund to use for initial IRA contribution?

Post by White Coat Investor » Sat Sep 08, 2018 4:32 pm

Use the MMF and convert that extra dollar into the Roth IRA the next day. Technically you'll owe taxes on the dollar.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

Wiired
Posts: 9
Joined: Sun Jun 21, 2009 10:28 am

Re: Backdoor Roth - which fund to use for initial IRA contribution?

Post by Wiired » Sat Sep 08, 2018 5:15 pm

White Coat Investor wrote:
Sat Sep 08, 2018 4:32 pm
Use the MMF and convert that extra dollar into the Roth IRA the next day. Technically you'll owe taxes on the dollar.
Thanks!
Yeah that's what happened last year, I owed taxes on the dollar. Sounds silly but was just wondering if there was some way to avoid that

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White Coat Investor
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Location: Greatest Snow On Earth

Re: Backdoor Roth - which fund to use for initial IRA contribution?

Post by White Coat Investor » Sat Sep 08, 2018 5:43 pm

Wiired wrote:
Sat Sep 08, 2018 5:15 pm
White Coat Investor wrote:
Sat Sep 08, 2018 4:32 pm
Use the MMF and convert that extra dollar into the Roth IRA the next day. Technically you'll owe taxes on the dollar.
Thanks!
Yeah that's what happened last year, I owed taxes on the dollar. Sounds silly but was just wondering if there was some way to avoid that
You can do the conversion the very next day and use the lowest yielding MMF and hope it's under 50 cents of interest.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

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FiveK
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Re: Backdoor Roth - which fund to use for initial IRA contribution?

Post by FiveK » Sat Sep 08, 2018 7:56 pm

Wiired wrote:
Sat Sep 08, 2018 5:15 pm
Yeah that's what happened last year, I owed taxes on the dollar. Sounds silly but was just wondering if there was some way to avoid that
If you used the Tax Tables and the $1 didn't change the "at least...but less than..." range then you paid no tax on that $1. If you were unlucky enough to have it change your taxable income from $99,950 to $99,951 it cost you up to $14. Fortunately at that income you could afford it. ;)

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