Backdoor Roth Ira Conversion Vanguard

The amount you convert to a roth ira isn t subject to the 10 penalty that s charged on traditional ira withdrawals taken before you reach age 59.

Backdoor roth ira conversion vanguard.

Convert to a roth ira. Money contributed to roth accounts does not result in a tax deduction unlike contributions to tax deferred accounts. On your account overview page click on convert to roth ira. But make sure you understand the tax consequences before using this strategy.

Through the back door. If you understand the rules of both of these steps putting them together is no problem. There has been a lot of talk lately about the mega backdoor roth ira. However the irs released guidance that specifically addressed both backdoor roth ira conversions and the so called mega backdoor roth ira as a result it has gained even more popularity and interest.

Then move the money into a roth ira using a roth conversion. The conversion would be part of a 2 step process often referred to as a backdoor strategy. This is the same process whether you re converting from an ira to a roth ira or performing a backdoor roth ira conversion. Converting to a roth ira may ultimately help you save money on income taxes.

For a long time it was an unspoken secret used by retirement planners. For instance if you expect your income level to be lower in a particular year but increase again in later years you can initiate a roth conversion to capitalize on the lower income tax year and then let that money grow tax free in your roth ira account. Most physicians should be using a personal and spousal roth ira and will usually need to fund one indirectly i e. Open a roth ira for your backdoor roth ira conversion this is the key part that is not intuitive on vanguard.

A step by step guide with vanguard. Backdoor roth ira 2020. A method that taxpayers can use to place retirement savings in a roth ira even if their income is higher than the maximum the irs allows for regular roth ira contributions. You may wish to consult a tax advisor about your situation.

First place your contribution in a traditional ira which has no income limits. Vanguard makes converting an ira to a roth ira comically simple. Note also that a backdoor roth ira is primarily a two step process an ira contribution and a roth conversion.