Author Topic: Specific Vanguard IRA question  (Read 1791 times)

OneCoolCat

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Specific Vanguard IRA question
« on: February 13, 2015, 07:38:01 PM »
I have a 2014 Roth IRA with 5,600 in VTSMX.  I want to start my 2015 IRA, also in VTSMX, but I want this years IRA to be traditional.  My plan was to reallocate my VTSMX IRA ($3,000 minimum to open) into a VTSAX IRA ($10,000 minimum to open) once I got $10k in there because VTSAX has a lower expense ration for basically the same fund.  You can probably see where I am going with this, can I meet the $10k minimum to open VTSAX if $5k is in a Roth and $5k is in a traditional IRA or does it have to be in the same account? 

I don't want to recharacterize my 2014 Roth IRA because I was in a lower tax bracket in 2014 and I already filed my taxes.  This year I want to defer as much taxable income as possible.

skyrefuge

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Re: Specific Vanguard IRA question
« Reply #1 on: February 13, 2015, 08:07:19 PM »
No, they are both treated separately for determining Admiral status. Luckily, this will only "cost" you $13.20 next year, and then $6.60 each year after that, which is hopefully dwarfed by the tax-savings from your fund-placement.

johnny847

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Re: Specific Vanguard IRA question
« Reply #2 on: February 13, 2015, 08:08:04 PM »
No you cannot. Minimums must be met per fund within each account.

Don't worry about the expense ratio difference in this scenario. The expense ratio is incredibly important when we're talking about long investment horizons because the expense ratio becomes a compounding fee.
When we're talking about just a couple years of having to pay a slightly higher expense ratio, there's hardly any compounding going on.
And on top of that, Vanguard's expense ratios for investor shares are already pretty low to begin with.

OneCoolCat

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Re: Specific Vanguard IRA question
« Reply #3 on: February 13, 2015, 08:19:04 PM »
Dang, should I just put this years into the Roth so that I can turn it into VTSAX?  Or would you just open the traditional and start from scratch?  I'm leaning towards the Roth.
« Last Edit: February 13, 2015, 08:20:35 PM by OneCoolCat »

skyrefuge

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Re: Specific Vanguard IRA question
« Reply #4 on: February 13, 2015, 09:25:17 PM »
Dang, should I just put this years into the Roth so that I can turn it into VTSAX?

Um, no. Did you actually read the posts from me and johnny847? Or you just stopped after you saw the word "no"?

"Don't worry about the expense ratio difference in this scenario."

If the choice between Roth and Traditional produced literally no difference in your lifetime tax burden, then I suppose you could use this expense ratio thing as your coin flip to choose between the two (and really, it would just be the "not needing to open a second account" that would argue in favor of the Roth in that case). But it's extremely unlikely that there is no difference between the two.

It's good to optimize, but optimize the things that actually make a noticeable difference. This isn't one of those things. By focusing on expense ratio savings, you'd probably be costing yourself a lot more in taxes.
« Last Edit: February 13, 2015, 09:27:52 PM by skyrefuge »