Funding Vanguard Roth IRA from taxable account

[madamwitty]

There is a thread by this title on the Bogleheads forum but frustratingly Bogleheads seems to be down today.

I am trying to tell Vanguard to fund my 2016 Roth IRA by selling shares in my Vanguard taxable account. Is this possible to do in a single transaction?

It seems like it should be simple but I can't figure out how to do it with the Vanguard.com interface. I get an error message saying "You must select Sell in dollars because we need to know the dollar amount of your contribution." (on the right side of the screen, under the heading "Where's the money going".) But the interface for indicating which fund & tax lot I want to sell from only lets me specify a number of shares! (on the left side of the screen, under the heading "1.Where's the money coming from?").

Am I doing something wrong?

[Crushtheturtle]

It might be easier to split it into 2 steps:
-sell the specific lots you want in taxable, with cash going into settlement fund
-buy within Roth, with funds coming from taxable settlement fund

[MustacheAndaHalf]

Vanguard might be preventing too much contribution to Roth.  You could select what looks like $5500, but because of market moves becomes $5700 and is over your Roth contribution limit.  Could you then blame Vanguard for it?  Not sure, but I doubt they want to know the answer.  The easy route is not to accept anything but a cash contribution to your Roth.

Another point is that you can't avoid the taxes on selling because you're contributing to a Roth.  You need to realize the gains first, which is done by selling.  Vanguard can't transfer appreciated assets into a Roth directly because that would ignore taxes you owe on those assets.  So a second reason you might have to sell first is to figure out how much taxes you owe on the shares.

I think both reasons are driven by IRS rules.  Ultimately someone has to sell the shares before they go into a Roth account, and Roth IRA are limited to $5500 contribution per year.

[madamwitty]

Yeah, I guess I understand why they wouldn't allow it to be a single transaction, since I have to sell for cash first. I just wish there was a way to do it in a single day. There's no fundamental reason I shouldn't be able to sell and then contribute on the same day, but there's no apparent way to give instructions to do so. A limitation of the interface, it seems.

[CantGrowABeard]

I was having trouble doing this as well but I figured out a trick.

Put in a dollar amount like $80, then continue and open up the Brokerage Roth IRA tab (if you upgraded your account to the brokerage that is) and then you'll see the ability to buy into a fund (in my case VTSAX). You can then change the other side to "Sell All Shares" and then buy the amount of those shares in your Roth IRA and continue.

[madamwitty]

Maybe the key is that I could do it if I upgrade to a brokerage account.

Thanks for sharing.

[MrRealEstate]

Finally got this all settled for my sister's IRA.

Apparently if you want to move the money from the brokerage to the IRA you have to move at least one penny less than the total. I've attached the message from vanguard for future reference since it would've helped me to be on here.

Thank you for taking the time to contact us.

When you sell a security in your Vanguard Brokerage Account, the amount is
automatically credited to your money market settlement fund account on the
settlement date, which is usually three business days after the trade date.
Balances will update online the following day.

Your "funds available to trade" is updated immediately after the trade has
executed on the "Balances & holdings" page at vanguard.com, reflecting the
amount of your sell.

Our records show that you sold Vanguard Total Stock Market ETF (VTI) with a
trade date of February 2, 2017. Therefore the settlement date was February
7, 2017. You may log in on or after February 8, 2017 to see the money in
your settlement fund.

The money in brokerage account 82814635 is now available to make an IRA
contribution. You can do so online by following the steps below.

1. Log on to your account at vanguard.com.
2. From the "My Accounts" dropdown, select "Buy & sell."
3. Select “Exchange Vanguard funds."
4. Choose your investment(s) and follow the instructions.

Please note, you will be unable to exchange the total balance out of
brokerage account 82814635 as the system requires you to exchange into an
IRA account in dollars and not percentage. You must sell at least one penny
less than the total balance. You may contact us the phone number below if
you need further explanation on this issue. We are happy to assist.

If you have additional questions, please call us at 800-662-2739. You can
reach us on business days from 8 a.m. to 10 p.m., Eastern time.