Mechanics of Roth Conversion *at* Vanguard

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Cara
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Mechanics of Roth Conversion *at* Vanguard

Post by Cara »

I'm thinking of doing my first partial Roth conversion this month, from a tIRA @ Vanguard to an existing Roth @ Vanguard.

I have gone far enough into the process on the website to see that I will input a number of shares from the fund(s) that I want to convert out. I'm afraid to go further in the online process until I'm really ready to do this. Will I also be presented with what I want to convert those shares *to*, or will Vanguard just exchange the same shares into my Roth?
livesoft
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Re: Mechanics of Roth Conversion *at* Vanguard

Post by livesoft »

Yes, you will be presented with what you want to convert shares to. You can add a new fund that you do not yet own. And you can split the incoming conversion into more than one fund. You can use a dollar amount with mutual funds and do not have to use number of shares. Vanguard.com has set this up like an "Exchange" and once it is seen that you are exchanging from a tIRA to a Roth IRA, then it starts to use the term "Roth conversion." It wasn't always this ways.

Also, I am talking about exchanging mutual fund shares out of tIRA.

Just did this yesterday. Will do it again before year end once I know more about income levels for 2021.
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RickyAZ
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Re: Mechanics of Roth Conversion *at* Vanguard

Post by RickyAZ »

For all the trashing of VGI, their Roth conversion process is terrific. No phone calls needed, no forms. The link is ever present on the web view. Enough warnings regarding tax options. Treats the customer like they know what they are doing. 9/10
Wish they’d left the dollar amount option. That made it 10/10
nalor511
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Re: Mechanics of Roth Conversion *at* Vanguard

Post by nalor511 »

RickyAZ wrote: Fri Dec 03, 2021 8:07 pm For all the trashing of VGI, their Roth conversion process is terrific. No phone calls needed, no forms. The link is ever present on the web view. Enough warnings regarding tax options. Treats the customer like they know what they are doing. 9/10
Wish they’d left the dollar amount option. That made it 10/10
It seems like most brokers do this fully online (Schwab does), they just don't advertise it. It pops up when you try a transfer from Trad->Roth
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Tamarind
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Re: Mechanics of Roth Conversion *at* Vanguard

Post by Tamarind »

My mother does these often. You will be presented with a screen to review your proposed transaction before you confirm. It's hard to execute the conversion by accident, so just take your time and go through the screens.
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Re: Mechanics of Roth Conversion *at* Vanguard

Post by tomd37 »

It has been a while since I did my last Roth conversion online, but I seem to remember you are asked if you are converting in dollars or in shares. You have to ensure you are converting in whatever one you want, so be careful. I seem to remember a long saga on this forum where the poster selected the wrong one and ended up with a HUGE tax bill that could not be reversed. Five thousand shares of VTSAX are significantly different than five thousand dollars of VTSAX for example.

Otherwise converting online is simple.
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rkhusky
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Re: Mechanics of Roth Conversion *at* Vanguard

Post by rkhusky »

When I convert from a brokerage tIRA to an old school mutual fund Roth, I only have the option of converting in shares and only into the same fund.
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celia
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Re: Mechanics of Roth Conversion *at* Vanguard

Post by celia »

Why don’t you first convert a small amount, say 10% of the total you plan to convert, to see if everything ends up like you expect. Then you can do the 90% after you have some confidence.

It’s smart of you to ask questions beforehand, since Roth conversions are one of the things you can’t ‘un-do’.

I think the most ‘unsure’ part of a Roth conversion is what it will do to your taxes. But you can get past that by entering estimated 2021 data into 2020 or 2021 tax software to do an estimate.
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.
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Re: Mechanics of Roth Conversion *at* Vanguard

Post by tibbitts »

Maybe it's different on the brokerage side, but I find it confusing that when the tax withholding page displays in my mutual fund account, "none" is the first-listed option for federal, but "none' is the bottom-listed option for state. It seems like they should be consistent, top to bottom.
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Mullins
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Re: Mechanics of Roth Conversion *at* Vanguard

Post by Mullins »

livesoft wrote: Fri Dec 03, 2021 7:38 pm Yes, you will be presented with what you want to convert shares to. You can add a new fund that you do not yet own.
I don't get that option, and in looking into why, it's because "brokerage" accounts don't have that option, while the former "mutual fund" accounts still do.
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Mullins
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Re: Mechanics of Roth Conversion *at* Vanguard

Post by Mullins »

And you should also know how you're going to answer the checkbox on whether to have tax withheld from the conversion or not. If you're paying from other funds, then that's a no. And you'll make an estimated tax payment in January to Fed and State (if applicable). If you're paying from the conversion itself but you're under 59.5, understand that cash portion that's withheld will be considered an early withdrawal and be subjected to the early withdrawal penalty.
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Re: Mechanics of Roth Conversion *at* Vanguard

Post by niagara_guy »

converting from tira to Roth is generally a non-reversible transaction, so be careful. I have read about a person who thought they were converting $1,000 (or something like that) but really converted 1,000 shares and had a huge tax bill and could not have the transaction reversed. You can do this online or you can do it over the phone which might reduce the risk of a mistake.
livesoft
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Re: Mechanics of Roth Conversion *at* Vanguard

Post by livesoft »

Mullins wrote: Sat Dec 04, 2021 10:10 am
livesoft wrote: Fri Dec 03, 2021 7:38 pm Yes, you will be presented with what you want to convert shares to. You can add a new fund that you do not yet own.
I don't get that option, and in looking into why, it's because "brokerage" accounts don't have that option, while the former "mutual fund" accounts still do.
Interesting because the Roth IRA that I used is a Roth brokerage account and certainly allowed one to add a new fund for the incoming conversion amount. But I realize this is Vanguard and what works for one client may not work for another client. :)
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tibbitts
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Re: Mechanics of Roth Conversion *at* Vanguard

Post by tibbitts »

niagara_guy wrote: Sat Dec 04, 2021 10:16 am You can do this online or you can do it over the phone which might reduce the risk of a mistake.
I'll guess the odds of a mistake would be about the same. The rep might(?) have more experience but now you have communication between two people and two people having to not make a mistake.
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Re: Mechanics of Roth Conversion *at* Vanguard

Post by tomd37 »

Tibbitts - And you are also on a recorded telephone line with the Vanguard representative so if a mistake is made by either participant in the conversation, it should be easy to determine fault and come to an appropriate resolution. :wink:
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Eagle33
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Re: Mechanics of Roth Conversion *at* Vanguard

Post by Eagle33 »

livesoft wrote: Fri Dec 03, 2021 7:38 pm Yes, you will be presented with what you want to convert shares to. You can add a new fund that you do not yet own. And you can split the incoming conversion into more than one fund. You can use a dollar amount with mutual funds and do not have to use number of shares. Vanguard.com has set this up like an "Exchange" and once it is seen that you are exchanging from a tIRA to a Roth IRA, then it starts to use the term "Roth conversion." It wasn't always this ways.

Also, I am talking about exchanging mutual fund shares out of tIRA.

Just did this yesterday. Will do it again before year end once I know more about income levels for 2021.
That may be true between tIRA to Roth IRA if both are mon the mutual fund platform. However, this past Wednesday we started my spouse's conversion, but after entering dollar amount for the mutual fund in tIRA when we clicked the button to move to the next step in the conversion process (to select where to transfer) we had to enter number of shares to the same mutual fund in the Roth IRA. :x

Had to do some quick calc of share quantity based on my guesstimate of end of day price and still stay below IRMAA threshold. Not happy with this "feature" of the brokerage platform. Much more like mutual fund platform accounts where the shares are auto calculated at actual conversion to ensure the exact dollar amount transfers as shares-in-kind. My accounts are on the mutual fund platform and don't plan to transition platforms until either VG fixes the brokerage platform for conversions, we stop doing Roth conversions, or are forced to transition. This is just one of 3 benefits of the mutual fund platform that I will lose if I transition.
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Re: Mechanics of Roth Conversion *at* Vanguard

Post by livesoft »

Eagle33 wrote: Sat Dec 04, 2021 11:35 pm
That may be true between tIRA to Roth IRA if both are mon the mutual fund platform. However, this past Wednesday we started my spouse's conversion, but after entering dollar amount for the mutual fund in tIRA when we clicked the button to move to the next step in the conversion process (to select where to transfer) we had to enter number of shares to the same mutual fund in the Roth IRA. :x
I cannot explain what happened to you. If one is doing a conversion of a mutual fund dollar amount, then as you noted the number of shares has to be unknown since at the time of entering the conversion request (the exchange) the NAV of the fund has not been calculated. Here is a bit of screen capture of what I saw for a brokerage account Roth:

Image

Note the column title "Dollar Amount"

So I can only surmise that Vanguard web site and IT has issues for some people and not for others?
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retiredjg
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Re: Mechanics of Roth Conversion *at* Vanguard

Post by retiredjg »

I'm wondering if there is a difference depending on if you are selling a mutual fund or an ETF.

It would not be possible to designate the number of shares of a mutual fund to sell since that price may not have been calculated yet.
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Re: Mechanics of Roth Conversion *at* Vanguard

Post by nalor511 »

retiredjg wrote: Sun Dec 05, 2021 3:20 pm I'm wondering if there is a difference depending on if you are selling a mutual fund or an ETF.

It would not be possible to designate the number of shares of a mutual fund to sell since that price may not have been calculated yet.
Someone recently said you get EOD price for both MF and ETF at VG for Roth Conversion and that both must be done in SHARES (not dollars) if you have a brokerage account
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Eagle33
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Re: Mechanics of Roth Conversion *at* Vanguard

Post by Eagle33 »

livesoft wrote: Sun Dec 05, 2021 1:11 am
Eagle33 wrote: Sat Dec 04, 2021 11:35 pm
That may be true between tIRA to Roth IRA if both are mon the mutual fund platform. However, this past Wednesday we started my spouse's conversion, but after entering dollar amount for the mutual fund in tIRA when we clicked the button to move to the next step in the conversion process (to select where to transfer) we had to enter number of shares to the same mutual fund in the Roth IRA. :x
I cannot explain what happened to you. If one is doing a conversion of a mutual fund dollar amount, then as you noted the number of shares has to be unknown since at the time of entering the conversion request (the exchange) the NAV of the fund has not been calculated. Here is a bit of screen capture of what I saw for a brokerage account Roth:

Image

Note the column title "Dollar Amount"

So I can only surmise that Vanguard web site and IT has issues for some people and not for others?
Actually you would need to go one more step and actually select the Roth IRA fund, then the screen will change to show fund name, a shares field and the dollar amount we initially entered in the very first step of the conversion process. The dollar amount could not be changed and forced us to enter a share quantity to proceed in the conversion process. Once conversion request was confirmed, website showed both the entered shares and initial dollar amount as a pending transaction. However, when conversion was actually executed by VG they used the shares entered and EOD price of the MF and of course the dollar valued changed to equal shares x price. Next year we plan to do 100% conversion of the remaining balance in spouse's tIRA. I wonder if shares will show up at some point in the process or will the 100% not require a share quantity - we will have to wait for a few more weeks to find out.
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Re: Mechanics of Roth Conversion *at* Vanguard

Post by retire2022 »

Cara wrote: Fri Dec 03, 2021 7:24 pm I'm thinking of doing my first partial Roth conversion this month, from a tIRA @ Vanguard to an existing Roth @ Vanguard.

I have gone far enough into the process on the website to see that I will input a number of shares from the fund(s) that I want to convert out. I'm afraid to go further in the online process until I'm really ready to do this. Will I also be presented with what I want to convert those shares *to*, or will Vanguard just exchange the same shares into my Roth?
Op

It would be helpful to estimate your taxes and withholding before you decide to go ahead with Roth Conversion:

Use Taxform and choose the one for your state https://www.taxformcalculator.com/

Additionally use AARP to check against the Federal tax from taxform

https://www.aarp.org/money/taxes/1040_t ... lator.html
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Cara
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Re: Mechanics of Roth Conversion *at* Vanguard

Post by Cara »

retire2022 wrote: Mon Dec 06, 2021 1:21 pm Op

It would be helpful to estimate your taxes and withholding before you decide to go ahead with Roth Conversion:

Use Taxform and choose the one for your state https://www.taxformcalculator.com/

Additionally use AARP to check against the Federal tax from taxform

https://www.aarp.org/money/taxes/1040_t ... lator.html
Thanks - I have done estimates (hopefully, good ones!). I worry about income items that I might be forgetting or underestimating, but I think I've left myself enough wiggle room that that won't be a problem.
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Cara
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Re: Mechanics of Roth Conversion *at* Vanguard

Post by Cara »

tibbitts wrote: Sat Dec 04, 2021 12:01 am Maybe it's different on the brokerage side, but I find it confusing that when the tax withholding page displays in my mutual fund account, "none" is the first-listed option for federal, but "none' is the bottom-listed option for state. It seems like they should be consistent, top to bottom.
And here's what I see when I start tIRA brokerage partial conversion to Roth brokerage:
"Withholding for federal and state taxes isn't available for Roth conversions requested on vanguard.com. You must elect not to have withholding applied to proceed. Call us at 800-284-7245 if you need information about requesting a Roth conversion for which you would like withholding. You must check the box below before you can continue."

So you CANNOT have withholding done, when performing the transaction online.
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Cara
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Re: Mechanics of Roth Conversion *at* Vanguard

Post by Cara »

I decided to do a partial partial conversion. One other thing that has been mentioned is where the proceeds will go, in the Roth, and how to select the amount to convert.

I am ONLY presented (with my brokerage accounts) with the option to enter a # of shares (fractional allowed), not to enter a dollar amount.

And, this note is displayed before I submit, showing that whatever I sell in the tIRA is what I will buy, apparently, in the Roth.
This total is estimated based on the previous NAV or closing price. The actual conversion amount is based on today's NAV or closing price. You'll receive final confirmation with the transaction details for all of the holdings converted. Holdings other than your money market settlement fund will be transferred in-kind.

It was suggested that by someone that I initiate an exchange and I may try that, next time - but their instructions say to go to the "Balances and Holdings" page, select the Traditional IRA, and then use the "Convert" option that subsequently shows in the account header.
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Re: Mechanics of Roth Conversion *at* Vanguard

Post by Cara »

Since I'm entered only part of my planned partial conversion, today, to get comfortable with the process -- I sure hope trading restrictions don't come into play. I would hope Vanguard would've notified me if they were going to, and I saw no such warning...
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Re: Mechanics of Roth Conversion *at* Vanguard

Post by rkhusky »

Cara wrote: Mon Dec 06, 2021 2:30 pm Since I'm entered only part of my planned partial conversion, today, to get comfortable with the process -- I sure hope trading restrictions don't come into play. I would hope Vanguard would've notified me if they were going to, and I saw no such warning...
Trading restrictions come into play when you want to buy the same fund shortly after selling the fund in the same account.

Two sell actions won’t trigger that. Nor would two buy actions. Nor a buy, followed by a sell.
Last edited by rkhusky on Mon Dec 06, 2021 2:35 pm, edited 1 time in total.
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Re: Mechanics of Roth Conversion *at* Vanguard

Post by tomd37 »

Cara - Based on my experiences with a conversion, I don't believe you will have any limitations on future conversions because it is just a conversion and not a sale. I believe there are limitations when you are selling in that you cannot buy back in within a certain period which I believe is thirty days. Let' see what others have to say on this subject.
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Re: Mechanics of Roth Conversion *at* Vanguard

Post by retiredjg »

Cara wrote: Mon Dec 06, 2021 2:24 pm
tibbitts wrote: Sat Dec 04, 2021 12:01 am Maybe it's different on the brokerage side, but I find it confusing that when the tax withholding page displays in my mutual fund account, "none" is the first-listed option for federal, but "none' is the bottom-listed option for state. It seems like they should be consistent, top to bottom.
And here's what I see when I start tIRA brokerage partial conversion to Roth brokerage:
"Withholding for federal and state taxes isn't available for Roth conversions requested on vanguard.com. You must elect not to have withholding applied to proceed. Call us at 800-284-7245 if you need information about requesting a Roth conversion for which you would like withholding. You must check the box below before you can continue."

So you CANNOT have withholding done, when performing the transaction online.
I think (but do not know for sure) this is because if you are under 59.5, withholding tax will create extra tax and a 10% penalty on the amount withheld. Since Vanguard knows the client's age, doing it by phone may only be required for people who are not yet 59.5.

It is certainly possible on the mutual fund platform for a person over 59.5. I did one this last weekend. But everything is different there from the brokerage platform.
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Cara
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Re: Mechanics of Roth Conversion *at* Vanguard

Post by Cara »

retiredjg wrote: Mon Dec 06, 2021 2:37 pm
Cara wrote: Mon Dec 06, 2021 2:24 pm
tibbitts wrote: Sat Dec 04, 2021 12:01 am Maybe it's different on the brokerage side, but I find it confusing that when the tax withholding page displays in my mutual fund account, "none" is the first-listed option for federal, but "none' is the bottom-listed option for state. It seems like they should be consistent, top to bottom.
And here's what I see when I start tIRA brokerage partial conversion to Roth brokerage:
"Withholding for federal and state taxes isn't available for Roth conversions requested on vanguard.com. You must elect not to have withholding applied to proceed. Call us at 800-284-7245 if you need information about requesting a Roth conversion for which you would like withholding. You must check the box below before you can continue."

So you CANNOT have withholding done, when performing the transaction online.
I think (but do not know for sure) this is because if you are under 59.5, withholding tax will create extra tax and a 10% penalty on the amount withheld. Since Vanguard knows the client's age, doing it by phone may only be required for people who are not yet 59.5.

It is certainly possible on the mutual fund platform for a person over 59.5. I did one this last weekend. But everything is different there from the brokerage platform.
I'm 60. It doesn't matter, because I intend to pay the taxes from my taxable account, but it's not based on age.
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Re: Mechanics of Roth Conversion *at* Vanguard

Post by RetiredAL »

Cara wrote: Mon Dec 06, 2021 2:24 pm
tibbitts wrote: Sat Dec 04, 2021 12:01 am Maybe it's different on the brokerage side, but I find it confusing that when the tax withholding page displays in my mutual fund account, "none" is the first-listed option for federal, but "none' is the bottom-listed option for state. It seems like they should be consistent, top to bottom.
And here's what I see when I start tIRA brokerage partial conversion to Roth brokerage:
"Withholding for federal and state taxes isn't available for Roth conversions requested on vanguard.com. You must elect not to have withholding applied to proceed. Call us at 800-284-7245 if you need information about requesting a Roth conversion for which you would like withholding. You must check the box below before you can continue."

So you CANNOT have withholding done, when performing the transaction online.
Fidelity does the same thing. Too many people mess up their $ calc's of "net to Roth" vs "gross up from the IRA", when is comes to conversions and taxes. The CSR will confirm absolutely to you what the 2 methods do to your source withdrawal and the destination deposit.

I nowadays always convert (at Fidelity) with no withholding doing so online. If I need more taxes that what my routine withholding are, I can do an IRA withdraw and specify the % to withhold. This years conversion was unusually large, putting me into a tax deficit. To handle that, I withdrew, separate from the conversion,and tagged 85% to Fed withholding and 9% to state withholding. Those got me to Safe Harbor.
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Cara
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Re: Mechanics of Roth Conversion *at* Vanguard

Post by Cara »

My final update (I think): The conversion of shares is done with the sale and purchase at the same price - it's listed as a transfer of shares, not a sell/buy transaction. So no need to worry about timing, except for the tax implications of the value that ends up getting converted (since you can only specific shares, not the value you want to convert).
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Re: Mechanics of Roth Conversion *at* Vanguard

Post by Chip Munk »

Cara wrote: Tue Dec 07, 2021 12:08 pm My final update (I think): The conversion of shares is done with the sale and purchase at the same price - it's listed as a transfer of shares, not a sell/buy transaction. So no need to worry about timing, except for the tax implications of the value that ends up getting converted (since you can only specific shares, not the value you want to convert).
Unless things have changed since I did this in January, you can convert a specific dollar amount if you call Vanguard and have a rep do the conversion instead of doing it yourself online.

This is how it works if you call while the market is open: You specify the dollar amount, the rep then calculates the number of shares out to 3 decimal places, using the previous day's closing price. Because the number of shares must resolve to no more than 3 decimal places, the actual dollar amount might have to be adjusted by a few cents. The transaction is backdated to the previous day.

I've done it this way many times over the past few years, but the most recent was back in January. In another thread there is some discussion about changes to how conversions work online, so it's possible the reps have new software too and this option may no longer exist.
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Re: Mechanics of Roth Conversion *at* Vanguard

Post by 02nz »

niagara_guy wrote: Sat Dec 04, 2021 10:16 am converting from tira to Roth is generally a non-reversible transaction, so be careful. I have read about a person who thought they were converting $1,000 (or something like that) but really converted 1,000 shares and had a huge tax bill and could not have the transaction reversed. You can do this online or you can do it over the phone which might reduce the risk of a mistake.
I can't find that thread right now, but would advise the OP to do this over the phone. I'm generally someone who does everything online, but given Vanguard's iffy IT systems, I'd be much more comfortable knowing there's an audio recording of my instructions given over the phone.
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