We decided to do this both for DH and for me this year. With the tax bill, I got very worried about whether or not I’d be able to keep both the 403(b) and 457 contributions, so I figured we could do this for me too, not just DH.
It was super easy. Like, there was a button on the Vanguard website.
Here’s the process:
- Set up a link between our credit union and DH’s Vanguard account. Wait a day for them to transfer pennies and then take them back. They actually transferred the money without us saying how many pennies there were, but eventually DH had to fill in that information on the account.
- Wait a while because we got busy and weren’t paying attention. Then tax bill stuff happens which reminds us we should really do something about this.
- I send DH the link on how to turn a traditional IRA into a Roth IRA in Vanguard.
- We ponder how DH got more than $5 in interest while we were being lazy when we get like 16 cents a month from our Wells Fargo account with more money in it.
- DH reads through it and says, “we just need to press a button”.
- Turns out since DH doesn’t have a Roth IRA on his Vanguard account (his is still in etrade) that he has to create a Roth IRA account first. But then he can press the conversion button.
- Wait a day for it to convert.
- I’m like, hey, I should do this too.
- I transfer money to Vanguard (my account is already linked)
- The next day I press the button (I already have a Roth IRA at Vanguard)
- I decide to put all $5,505.35 in DH’s account into VANGUARD TOTAL INTL STOCK INDEX FUND ETF (VXUS) because I feel like his account needs more broad-based international exposure. I have to put a limit order on this because their # of shares calculator rounds, so either I get 97 shares or I need to wait until the price drops to get 98 shares. It’s on a downward trend, so I set a limit order for 60 days. The limit posts the next day.
- I decide that dealing with an ETF is kind of pain, so I choose the Index version for my account even though the fees are higher. This means I just say I want $5,500.38 worth of index fund shares (man those money market funds may not be FDIC insured, but they sure do rack up the pennies). I intend to put in another 5,500 in January and then get the Admiral funds expense ratio instead of the regular funds rate, assuming that this is still allowed in the coming year. (By the time this posts, we will know.) The trade is executed the next business day (Monday).
So all of that was pretty easy. If you have a lot of money in traditional IRAs it isn’t as easy at tax time, but we converted all our traditional IRAs into Roths back when these conversions were first allowed. I’ll let you know at tax time if I missed anything important.
P.S. Given the tax bill and its limited property tax deduction, we opted to not to bunch our property taxes. I paid the other half of this year’s property taxes before the end of the calendar year.
December 25, 2017 at 5:15 pm
Thank you for the post! I need to make a decision soon about whether this would make sense for us.
December 25, 2017 at 7:00 pm
It is pretty easy! We usually do it from the apps on our phones even :) It seems that it will still be doable next year from what I can tell. I’m half tempted to wait a bit in January to do it though.
December 25, 2017 at 7:35 pm
I’ve done this backdoor Roth for myself for three years now. What I’m really psyched about is that after wrestling spouse’s rollover IRA from another place to Vanguard …. His company changed their 401k provider from an expensive (.6 at the cheapest) one to Fidelity, and they accepted an incoming rollover. So that cleared up his situation in terms of pro-rata taxation, and I got his backdoor Roth done this year too.
In the less-psyched department, our township will not accept an early property tax payment. Grr.
January 5, 2018 at 5:19 am
Been looking into this. Is your understanding that the taxes are on your entire balance at the time of conversion or only your intitial contributioms? The literature I’ve read isn’t totally clear on that for me.
I have a 401K rollover that I put into an ira account when my company was sold in 2008 (right at the last crash) but it is now worth 3x what it was worth when I first converted so the tax difference is huge.
January 5, 2018 at 6:14 am
Entire balance, I think. But I don’t know for sure.
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