Vanguard backdoor ROTH - Exchange vs Convert to Roth options

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szhman
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Joined: Wed Sep 10, 2014 3:41 am

Vanguard backdoor ROTH - Exchange vs Convert to Roth options

Postby szhman » Thu Jan 05, 2017 6:06 pm

The procedure (backdoor Roth conversion) for high income people that are precluded from contributing to the Roth IRA directly. So, they contribute to a traditional IRA (as a non-deductible amount), and then within few days convert that to Roth IRA.

My question is about menu options in Vanguard site. I am wondering if there is significant difference between

clicking 'Convert to Roth IRA' from the tIRA menu [AND] clicking 'Exchange' menu option in Buy/Sell

My 5.5K fund is available when I click 'Convert to Roth IRA' to Money Market Fund in my tIRA when I click 'Conver to Roth IRA' menu.

But at the same time, 'Exchange' menu still says the 5.5K fund is NOT available for Roth IRA exchange.

It's uncertain to me what the differences are between these actions (different ways of doing Rotha IRA conversion from tIRA).

And what's the best way to convert to Roth IRA out of these two menu options. Thanks for your insights.

boglephreak
Posts: 413
Joined: Fri Apr 22, 2016 5:16 pm

Re: Vanguard backdoor ROTH - Exchange vs Convert to Roth options

Postby boglephreak » Thu Jan 05, 2017 8:28 pm

i thought exchange just means exchanging one fund for another within an account, whereas convert was what was required to convert funds from one account to another (i.e., IRA to Roth IRA). i just did this for my backdoor roth and used the convert button. hope that was correct. when i tax loss harvested last year, i used the exchange button to change my investment to a similar investment within my taxable account.

SnowSkier
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Location: Austin

Re: Vanguard backdoor ROTH - Exchange vs Convert to Roth options

Postby SnowSkier » Thu Jan 05, 2017 10:58 pm

In prior years, before moving to the new consolidated Vanguard brokerage accounts, this (backdoor Roth every January) was very straightforward.

After moving money into non-deductible Traditional IRA settlement fund from online savings account...

We did one-step, an "exchange" from money market in Traditional IRA to desired Vanguard mutual fund in Roth IRA. Easy.

This year, it was different and a bit confusing, but after calling flagship rep, was able to do it online myself. It was 2 steps vs. 1 step in prior years.

1. did "convert to Roth IRA" to move $$ from settlement fund in Traditional IRA to settlement fund in Roth IRA.

then, on the same day, was able to

2. hit "buy" in the Roth IRA to buy desired Vanguard mutual fund in the Roth IRA using the pending settlement fund in Roth IRA

Hope that helps.

Vanguard rep said that next January he hoped Vanguard IT would have provided the ability be able to do the one-step "exchange" from Traditional IRA fund to Roth IRA fund.

szhman
Posts: 22
Joined: Wed Sep 10, 2014 3:41 am

Re: Vanguard backdoor ROTH - Exchange vs Convert to Roth options

Postby szhman » Thu Jan 05, 2017 11:21 pm

SnowSkier wrote:In prior years, before moving to the new consolidated Vanguard brokerage accounts, this (backdoor Roth every January) was very straightforward.

After moving money into non-deductible Traditional IRA settlement fund from online savings account...

We did one-step, an "exchange" from money market in Traditional IRA to desired Vanguard mutual fund in Roth IRA. Easy.

This year, it was different and a bit confusing, but after calling flagship rep, was able to do it online myself. It was 2 steps vs. 1 step in prior years.

1. did "convert to Roth IRA" to move $$ from settlement fund in Traditional IRA to settlement fund in Roth IRA.

then, on the same day, was able to

2. hit "buy" in the Roth IRA to buy desired Vanguard mutual fund in the Roth IRA using the pending settlement fund in Roth IRA

Hope that helps.

Vanguard rep said that next January he hoped Vanguard IT would have provided the ability be able to do the one-step "exchange" from Traditional IRA fund to Roth IRA fund.


Thanks both of you for your quick detailed response. I'll proceed with the 'Convert to Roth IRA' menu option and once the funds are available in Roth IRA money market fund (settlement), I can choose the vanguard funds for Roth IRA. Much appreciated.

yolli71
Posts: 271
Joined: Fri May 20, 2011 9:53 am

Re: Vanguard backdoor ROTH - Exchange vs Convert to Roth options

Postby yolli71 » Fri Jan 06, 2017 10:09 am

I have a question about this. I just transferred $5,500 from my BOA Checking account into my Vangaurd tIRA money market account on Wednesday. When I tried to do the Roth conversion yesterday, the Vanguard website said my tIRA account has "unavailable shares" and that electronic bank transfers are subject to a 7 day hold.

Do most of you have a regular (taxable) money market Vanguard account and transfer the $5500 from there into your tIRA?

ved
Posts: 562
Joined: Sat Jan 18, 2014 6:56 pm

Re: Vanguard backdoor ROTH - Exchange vs Convert to Roth options

Postby ved » Fri Jan 06, 2017 10:26 am

yolli71 wrote:I have a question about this. I just transferred $5,500 from my BOA Checking account into my Vangaurd tIRA money market account on Wednesday. When I tried to do the Roth conversion yesterday, the Vanguard website said my tIRA account has "unavailable shares" and that electronic bank transfers are subject to a 7 day hold.

Do most of you have a regular (taxable) money market Vanguard account and transfer the $5500 from there into your tIRA?


I had a similar thing - I transferred from an outside bank to my tIRA on Jan 3. On Jan 4, I was hoping to convert it to Roth, but it said that the funds were unavailable until Jan 10th. However, on Jan 5, I was able to do the conversion. So, it took 2 days (rather than 1, but far less then 10 days that they were saying it would be).

Here's a thread from a couple days ago that other folks had the same issue: Backdoor Roth issue using Federal MMF

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White Coat Investor
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Re: Vanguard backdoor ROTH - Exchange vs Convert to Roth options

Postby White Coat Investor » Fri Jan 06, 2017 10:27 am

I did one of each this year- exchanged one and "converted to Roth" the other. Both worked fine.
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

boglephreak
Posts: 413
Joined: Fri Apr 22, 2016 5:16 pm

Re: Vanguard backdoor ROTH - Exchange vs Convert to Roth options

Postby boglephreak » Fri Jan 06, 2017 1:42 pm

ved wrote:
yolli71 wrote:I have a question about this. I just transferred $5,500 from my BOA Checking account into my Vangaurd tIRA money market account on Wednesday. When I tried to do the Roth conversion yesterday, the Vanguard website said my tIRA account has "unavailable shares" and that electronic bank transfers are subject to a 7 day hold.

Do most of you have a regular (taxable) money market Vanguard account and transfer the $5500 from there into your tIRA?


I had a similar thing - I transferred from an outside bank to my tIRA on Jan 3. On Jan 4, I was hoping to convert it to Roth, but it said that the funds were unavailable until Jan 10th. However, on Jan 5, I was able to do the conversion. So, it took 2 days (rather than 1, but far less then 10 days that they were saying it would be).

Here's a thread from a couple days ago that other folks had the same issue: Backdoor Roth issue using Federal MMF

same thing happened to me. i thought i would have to wait seven days, but it allowed me to do it the next day (i.e., yesterday). the conversion has not taken place yet though, will check in later today.

szhman
Posts: 22
Joined: Wed Sep 10, 2014 3:41 am

Re: Vanguard backdoor ROTH - Exchange vs Convert to Roth options

Postby szhman » Fri Jan 06, 2017 7:22 pm

Thank you all. I did proceed with 'Convert to Roth IRA' menu options and the request went fine.

Compound
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Re: Vanguard backdoor ROTH - Exchange vs Convert to Roth options

Postby Compound » Fri Jan 06, 2017 7:35 pm

I'm still waiting to convert (because the website won't let me). Called vanguard and they said nothing I can do but wait until the funds become available.

Alfonsia
Posts: 9
Joined: Thu Mar 23, 2017 1:47 pm

Re: Vanguard backdoor ROTH - Exchange vs Convert to Roth options

Postby Alfonsia » Thu Apr 20, 2017 4:38 pm

I seem to be having a problem and it is very likely me LOL. SO the TIRA brokerage I managed to do is now is set up as a mutual fund target retirement date (I think that was my mistake? To do that from the MM account rather than the roth conversion then?), I am trying to do the conversion and I am not sure what the steps are, it says no available accounts are available, i can click on my mutual fun only IRA option to sell, am I just doing all this wrong?


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