Backdoor Roth in Vanguard Brokerage

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
User avatar
fortyofforty
Posts: 1086
Joined: Wed Mar 31, 2010 12:33 pm

Backdoor Roth in Vanguard Brokerage

Post by fortyofforty » Wed Apr 01, 2015 6:29 pm

Has anyone done a backdoor Roth contribution within the framework of Vanguard's brokerage account?

When I move money from the brokerage settlement money market fund, within the Roth, I am not given the option of moving 100%, only specific dollar amounts. Thus, after moving as much as I could, I was left with a few cents in that settlement account because what was in the money market earned a little bit overnight. I don't want this same scenario to be repeated when I move money from the tIRA settlement account to the Roth IRA, because I'd be leaving funds within the traditional IRA. Has anyone run into this issue?
"In a time of universal deceit, telling the truth becomes a revolutionary act." - George Orwell | There are many roads to doublin'. | Original Vanguard Diehard

User avatar
fortyofforty
Posts: 1086
Joined: Wed Mar 31, 2010 12:33 pm

Re: Backdoor Roth in Vanguard Brokerage

Post by fortyofforty » Thu Apr 02, 2015 6:34 am

A followup question: has anyone switched back from a "brokerage" account to a mutual fund account? I am sorry I made the switch.
"In a time of universal deceit, telling the truth becomes a revolutionary act." - George Orwell | There are many roads to doublin'. | Original Vanguard Diehard

Valdeselad
Posts: 186
Joined: Mon Apr 26, 2010 1:42 pm

Re: Backdoor Roth in Vanguard Brokerage

Post by Valdeselad » Fri Jan 08, 2016 11:09 am

I have the same question -- the new Brokerage account setup "upgrade" is adding a bit of confusion to the conversion process...would appreciate if anyone has experience they can pass along.

GMan82
Posts: 155
Joined: Mon Dec 07, 2015 4:50 pm
Location: Georgia

Re: Backdoor Roth in Vanguard Brokerage

Post by GMan82 » Fri Jan 08, 2016 11:34 am

I opened a vanguard Roth account last September and moved my existing Roth from Pershing over, losing about $130 in fees from Pershing. Well worth it though, to get out of John Hancock Lifestyle Growth Class A shares (JALGX) with 5% front load and 1.37% ER. I guess because of the date, the only option I had was a brokerage style account. I opted for ETFs in any case: VTI, VXUS, BND, and earlier this month I added VNQ (REIT index).

The way I did my backdoor contributions for 2015 and for 2016 was by having vanguard pull from my checking account into the traditional IRA brokerage account. Once th cash settles into the money market fund, then and only then am I permitted to do the Roth conversion.

But I DO get the option to convert the whole account, which is what I click. Are you not getting that option?

As far as the few cents that show up afterwards, I don't think it matters tax-wise because they are earnings on after-tax income contributed into a non-deductible IRA. In the end, you contributed the max and nothing more. If those few cents are still lagging behind in a month or so, I'd just convert them to roth as well prior to Dec 31. It'll show up that you contributed $5500 but rolled over $5500.05.

retiredjg
Posts: 33554
Joined: Thu Jan 10, 2008 12:56 pm

Re: Backdoor Roth in Vanguard Brokerage

Post by retiredjg » Fri Jan 08, 2016 11:43 am

I don't really think that was the cause of the few pennies being "left" in the account. I think the pennies may have been put there after the entire account was moved/converted to Roth.

When this "few pennies" problem started being reported, people speculated it might be because a dollar amount was selected rather than "all". But to my knowledge, nobody has confirmed that or indicated that anything different happens when "all" is selected.

Valdeselad
Posts: 186
Joined: Mon Apr 26, 2010 1:42 pm

Re: Backdoor Roth in Vanguard Brokerage

Post by Valdeselad » Fri Jan 08, 2016 11:49 am

My question is due to the different setup and screens on the new account "upgrade" vs. years past. It is not clear to me that the same 'exchange' is taking place but it's probably just because everything looks new with the enhanced setup.

User avatar
fortyofforty
Posts: 1086
Joined: Wed Mar 31, 2010 12:33 pm

Re: Backdoor Roth in Vanguard Brokerage

Post by fortyofforty » Fri Jan 08, 2016 4:01 pm

retiredjg wrote:I don't really think that was the cause of the few pennies being "left" in the account. I think the pennies may have been put there after the entire account was moved/converted to Roth.

When this "few pennies" problem started being reported, people speculated it might be because a dollar amount was selected rather than "all". But to my knowledge, nobody has confirmed that or indicated that anything different happens when "all" is selected.
Absolutely selected "all" when I converted the account. I believe, literally, it is what was earned by the Money Market Prime Settlement Fund overnight. And, as an aside, after contacting Vanguard yesterday, they cleared the five cents from my TIRA and moved it into my RIRA today. How this is cost effective from Vanguard's perspective is beyond me, but, then, I don't run a multi-trillion dollar fund company.
"In a time of universal deceit, telling the truth becomes a revolutionary act." - George Orwell | There are many roads to doublin'. | Original Vanguard Diehard

User avatar
fortyofforty
Posts: 1086
Joined: Wed Mar 31, 2010 12:33 pm

Re: Backdoor Roth in Vanguard Brokerage

Post by fortyofforty » Fri Jan 08, 2016 4:08 pm

GMan82 wrote:The way I did my backdoor contributions for 2015 and for 2016 was by having vanguard pull from my checking account into the traditional IRA brokerage account. Once th cash settles into the money market fund, then and only then am I permitted to do the Roth conversion.
That's exactly what I did, too. The cash settles only after a day or two, which leads to the issue I've mentioned.
But I DO get the option to convert the whole account, which is what I click. Are you not getting that option?
Yes, I get the option and select "all" when choosing how much to convert. Still, those few cents appear magically the next day, after the rest of the amount is converted.
As far as the few cents that show up afterwards, I don't think it matters tax-wise because they are earnings on after-tax income contributed into a non-deductible IRA. In the end, you contributed the max and nothing more. If those few cents are still lagging behind in a month or so, I'd just convert them to roth as well prior to Dec 31. It'll show up that you contributed $5500 but rolled over $5500.05.
I'm not sure Vanguard would let you monkey around with converting an amount of just a few cents. It was easier to contact Vanguard, and they converted the five cents as a separate transaction.

Seriously, Vanguard should understand that, when an investor selects to convert "all" shares, he wants to convert "all", not just what happens to be visible at the time he clicks the button to submit the request. It is impossible for an investor to know what money is floating around out there, waiting to be added to his account overnight. This isn't that complicated, Vanguard. Really.
"In a time of universal deceit, telling the truth becomes a revolutionary act." - George Orwell | There are many roads to doublin'. | Original Vanguard Diehard

retiredjg
Posts: 33554
Joined: Thu Jan 10, 2008 12:56 pm

Re: Backdoor Roth in Vanguard Brokerage

Post by retiredjg » Fri Jan 08, 2016 4:49 pm

I think you may not understand how the interest/dividends are paid.

They don't show up in the account each day. They probably show up at the end of the month or some designated day of the month. The money is literally not in your tIRA account when you hit the "all" button.

I think you should assume that when you hit the "all" button that Vanguard is converting everything that is in the account. The pennies show up later because they owe you those pennies come dividend day - even if the pennies were not in the account on the day you did the conversion.

I think you may be blaming Vanguard for something they have no control over.

User avatar
fortyofforty
Posts: 1086
Joined: Wed Mar 31, 2010 12:33 pm

Re: Backdoor Roth in Vanguard Brokerage

Post by fortyofforty » Fri Jan 08, 2016 5:11 pm

I could see that if--if--the "dividends were paid at the end of the month. They aren't. They appeared the day following the conversion of "all shares" of my TIRA to my RIRA. The funds were in the account for one day. So, before I absolve Vanguard from responsibility, I'd like to know if it is truly impossible to transfer "all shares" from one fund to another, or convert "all shares" from a TIRA to a RIRA, because there will always be some fractions of dollars worth of dividends to be paid out the following day. I sincerely doubt it. Besides, when the option "all shares" is chosen for an action, you'd think the dividends would follow the shares being converted or transferred. Apparently not.
"In a time of universal deceit, telling the truth becomes a revolutionary act." - George Orwell | There are many roads to doublin'. | Original Vanguard Diehard

Valdeselad
Posts: 186
Joined: Mon Apr 26, 2010 1:42 pm

Re: Backdoor Roth in Vanguard Brokerage

Post by Valdeselad » Fri Jan 08, 2016 5:36 pm

Again, apologies if I'm hijacking this thread a bit, but does anyone have experience with the conversion on the new "upgraded" brokerage interface at Vanguard? The screens it wants to lead me through look/feel substantially different than years past, and given that this is something I don't want to mess up, I want to make sure the process I'm taking is correct.

Essentially, I'm taking the same steps I did in previous years by 'exchanging' shares from my traditional IRA MM fund to my Roth IRA MM fund...but when I do this I'm presented with a series of screens and confirmations which look nothing like years past.

Just trying to get some verification from others that may have had the same experience...

technochino
Posts: 12
Joined: Sun Mar 08, 2015 4:16 pm
Location: San Francisco, CA

Re: Backdoor Roth in Vanguard Brokerage

Post by technochino » Fri Jan 08, 2016 6:33 pm

GMan82 wrote: As far as the few cents that show up afterwards, I don't think it matters tax-wise because they are earnings on after-tax income contributed into a non-deductible IRA. In the end, you contributed the max and nothing more. If those few cents are still lagging behind in a month or so, I'd just convert them to roth as well prior to Dec 31. It'll show up that you contributed $5500 but rolled over $5500.05.
Is there any problem with the IRS if I contribute $5500 but rollover $5500.05?

Just want to be sure before I pull the trigger.

mggray17
Posts: 75
Joined: Thu Feb 11, 2010 8:09 am

Re: Backdoor Roth in Vanguard Brokerage

Post by mggray17 » Fri Jan 08, 2016 6:38 pm

I just performed the process after reading the first part of this thread and any other about Backdoor Roths over the last few weeks. First time for me, as I normally just contribute to my Roth. Which I did in 2015, but had to recharacterize to Tira in December due to an unexpected rise in my 2015 income.

The process was smooth. Clicked the button that said "Convert to Roth". Seems like the right choice. From there it had the question regarding part or all. I chose all. Next was where to put it. It showed the choice of my existing Roth IRA already selected, which I chose or had the choice of opening a new Roth IRA. Next was withholding of taxes. I elected not to. Last was a choice of receiving a notice about with holding taxes. I chose no. What I was converting was at a loss. No need to deal with taxes. That was it. It was straightforward and smooth.

User avatar
fortyofforty
Posts: 1086
Joined: Wed Mar 31, 2010 12:33 pm

Re: Backdoor Roth in Vanguard Brokerage

Post by fortyofforty » Fri Jan 08, 2016 9:30 pm

mggray17 wrote:I just performed the process after reading the first part of this thread and any other about Backdoor Roths over the last few weeks. First time for me, as I normally just contribute to my Roth. Which I did in 2015, but had to recharacterize to Tira in December due to an unexpected rise in my 2015 income.

The process was smooth. Clicked the button that said "Convert to Roth". Seems like the right choice. From there it had the question regarding part or all. I chose all. Next was where to put it. It showed the choice of my existing Roth IRA already selected, which I chose or had the choice of opening a new Roth IRA. Next was withholding of taxes. I elected not to. Last was a choice of receiving a notice about with holding taxes. I chose no. What I was converting was at a loss. No need to deal with taxes. That was it. It was straightforward and smooth.
Yes, you described the process exactly as I did it. The problem appeared the following day, when a magical .05 appeared in my TIRA account, some sort of conversion residue that was stuck. It is the dividends generated by the money in the TIRA for that short period of time, I believe, and Vanguard's system doesn't catch the fact that you converted all the shares that generated the dividends so the dividends also should be converted. Let us know if this happens to you, too.

By the way, after my complaint, Vanguard converted the .05 from my TIRA to my RIRA, just like that. If enough of us complain, perhaps Vanguard will do something about this.
"In a time of universal deceit, telling the truth becomes a revolutionary act." - George Orwell | There are many roads to doublin'. | Original Vanguard Diehard

User avatar
fortyofforty
Posts: 1086
Joined: Wed Mar 31, 2010 12:33 pm

Re: Backdoor Roth in Vanguard Brokerage

Post by fortyofforty » Fri Jan 08, 2016 9:31 pm

technochino wrote:
GMan82 wrote: As far as the few cents that show up afterwards, I don't think it matters tax-wise because they are earnings on after-tax income contributed into a non-deductible IRA. In the end, you contributed the max and nothing more. If those few cents are still lagging behind in a month or so, I'd just convert them to roth as well prior to Dec 31. It'll show up that you contributed $5500 but rolled over $5500.05.
Is there any problem with the IRS if I contribute $5500 but rollover $5500.05?

Just want to be sure before I pull the trigger.
I believe, from what others have written, that amounts well under a dollar are not counted for tax purposes. I hope not, anyway.
"In a time of universal deceit, telling the truth becomes a revolutionary act." - George Orwell | There are many roads to doublin'. | Original Vanguard Diehard

User avatar
fortyofforty
Posts: 1086
Joined: Wed Mar 31, 2010 12:33 pm

Re: Backdoor Roth in Vanguard Brokerage

Post by fortyofforty » Fri Jan 08, 2016 9:35 pm

Valdeselad wrote:Again, apologies if I'm hijacking this thread a bit, but does anyone have experience with the conversion on the new "upgraded" brokerage interface at Vanguard? The screens it wants to lead me through look/feel substantially different than years past, and given that this is something I don't want to mess up, I want to make sure the process I'm taking is correct.

Essentially, I'm taking the same steps I did in previous years by 'exchanging' shares from my traditional IRA MM fund to my Roth IRA MM fund...but when I do this I'm presented with a series of screens and confirmations which look nothing like years past.

Just trying to get some verification from others that may have had the same experience...
I used the new Brokerage Account format to do the conversion. You are essentially doing a conversion of all shares from your Traditional IRA Settlement Fund into your Roth IRA Settlement Fund. Once the conversion is done, you can redeploy your money as you wish. There is a delay in the process of a day or two between steps, as you first move money from your bank account (or other location) into your TIRA Settlement Fund, then convert those shares to your Roth IRA Settlement Fund. At each step, there is a daylong delay before the funds are accessible.
"In a time of universal deceit, telling the truth becomes a revolutionary act." - George Orwell | There are many roads to doublin'. | Original Vanguard Diehard

GMan82
Posts: 155
Joined: Mon Dec 07, 2015 4:50 pm
Location: Georgia

Re: Backdoor Roth in Vanguard Brokerage

Post by GMan82 » Sat Jan 09, 2016 12:36 am

technochino wrote:
GMan82 wrote: As far as the few cents that show up afterwards, I don't think it matters tax-wise because they are earnings on after-tax income contributed into a non-deductible IRA. In the end, you contributed the max and nothing more. If those few cents are still lagging behind in a month or so, I'd just convert them to roth as well prior to Dec 31. It'll show up that you contributed $5500 but rolled over $5500.05.
Is there any problem with the IRS if I contribute $5500 but rollover $5500.05?

Just want to be sure before I pull the trigger.
Not that I know of. This happened to me for 2015, but Vanguard lists my contributions into traditional IRA as $5500 and my rollover as $5500.05. I think the IRS cares more about what your contribution was, not how much you rolled over. Of note, when I started the 2016 contribution process, I think vanguard put up a warning about trailing dividends. IIRC those should automatically transfer. I basically just glanced at it. I'll look out for it next month when I contribute the next half of this year's Backdoor Roth.

Someone more experienced and saavy have a better answer? I'm still new to all this.

Post Reply