Vanguard Roth IRA opening account, have question.

[MikeBear]

 I am opening a Roth IRA at Vanguard. I am over 55, so I can invest $6,500.00 in tax year 2014 for a Roth.

So, since I can only put in $6,500, and am doing a REIT (to offset my employer 401k which is heavy in stocks) VGSIX (minimum $3,000) is what I should go into, instead of VGSLX (minimum $10,000).

Is that right? How could I put a $10k minimum into VGSLX (for the lower fees) if the government only allows $6.5k for the year?

[johnny847]

You put in another $6500 next year into VGSIX. Then, through the Vanguard website, there's a page that lets you convert your investor shares to admiral shares (VGSLX).

For your knowledge, if this were to happen in a taxable account, there are no tax consequences for this conversion. This conversion is not equivalent to selling your investor shares and buying admiral shares. Vanguard does some what appears to me as magic to allow you to convert these shares as a non taxable event.

[MikeBear]

You put in another $6500 next year into VGSIX. Then, through the Vanguard website, there's a page that lets you convert your investor shares to admiral shares (VGSLX).

For your knowledge, if this were to happen in a taxable account, there are no tax consequences for this conversion. This conversion is not equivalent to selling your investor shares and buying admiral shares. Vanguard does some what appears to me as magic to allow you to convert these shares as a non taxable event.

Ok, thanks! That's basically what I figured I'd have to do, but I wanted to make sure, just in case there was some way to put in the $10k right away.

[MikeBear]

Can I put another $6,500 in the same Roth I'm opening ($13,000 total) for my wife (she's also 55), or does that have to be in a separate Roth account opened under her name?

[johnny847]

Can I put another $6,500 in the same Roth I'm opening ($13,000 total) for my wife (she's also 55), or does that have to be in a separate Roth account opened under her name?

She'll need a separate account. Even though as a married couple you file taxes as if you were one entity....for IRAs you must open them separately. A little bit strange, but those are the rules.
However, for the purposes of contributing to the IRA, your wife does not need earned income. So long as total household earned income is greater than or equal to your and your wife's contribution, contributions are allowed up to the legal limit of $6500 each.

[clarkm04]

REITs are great.  Just one clarification, REITs are basically stocks that focus on real estate.  Your mutual fund probably has real estate in it, you are just tilting a little bit to real estate with a REIT fund.

[MikeBear]

Can I put another $6,500 in the same Roth I'm opening ($13,000 total) for my wife (she's also 55), or does that have to be in a separate Roth account opened under her name?

She'll need a separate account. Even though as a married couple you file taxes as if you were one entity....for IRAs you must open them separately. A little bit strange, but those are the rules.
However, for the purposes of contributing to the IRA, your wife does not need earned income. So long as total household earned income is greater than or equal to your and your wife's contribution, contributions are allowed up to the legal limit of $6500 each.

OK, thanks!

[Cheddar Stacker]

MikeBear, if you aren't in a hurry you could wait until january. You can make your 2014 contribution anytime before 4/15/15. So on 1/2/15 make a $6,500 contribution for 2014 into your Roth and put it in a money market for a few days. Then make a $6,500 contribution for 2015 the same day, or the next day. Then move it all into admiral shares.

[MikeBear]

MikeBear, if you aren't in a hurry you could wait until january. You can make your 2014 contribution anytime before 4/15/15. So on 1/2/15 make a $6,500 contribution for 2014 into your Roth and put it in a money market for a few days. Then make a $6,500 contribution for 2015 the same day, or the next day. Then move it all into admiral shares.

Thanks, but I can open my 2014 account now, and then on 1/2/15 put in enough to put it over $10k, and then move it then. I don't have much time left to get everything aligned for even regular retirement at 62, so I don't want to waste the few months that are left in 2014.

If it wasn't for accidentally finding MMM in February, I would never have buckled down and gotten as far as I have as is. I was doing average already, but now it's all on AFTERBURNER drive! lol

I was one of the idiots that pulled everything out of the market in 2008 after getting scared and losing too much, and I never went back in until this year.... Those lost years since 2008 are a HUGE hit to my retirement.

[MikeBear]

Account is finally opened, verified, and funded as of yesterday morning. It's already made some money, more money than if it had sat in my bank account for 6 months.

It's a good feeling!

Do I have to do anything special because of this when I file taxes for this year?

[Cheddar Stacker]

Nice work.

Nothing special needs to be done at tax time. There is an IRS form (8606 I think) to track your principal contributed (basis) into the Roth for the purpose of early distribution of principal, but since you're over 55 that really shouldn't matter.

[johnny847]

Nice work.

Nothing special needs to be done at tax time. There is an IRS form (8606 I think) to track your principal contributed (basis) into the Roth for the purpose of early distribution of principal, but since you're over 55 that really shouldn't matter.

I believe you're incorrect. Form 8606 is titled Nondeductible IRAs. Nondeductible IRAs only exist for traditional IRAs for which you've made contributions that you have not deducted from your income (generally people only do this to contribute to a Roth via the backdoor).
In form 8606, it says one of the purposes of the form is "distributions from Roth IRAs." But there is nothing to indicate that you have to report your contributions to your Roth. And to the best of my knowledge, you don't have to report your Roth contributions to the IRS.

The only way that a Roth IRA can affect your tax return, as far as I am aware, is if you have a sufficently low AGI to qualify for the Saver's Credit.

[Cheddar Stacker]

Nice work.

Nothing special needs to be done at tax time. There is an IRS form (8606 I think) to track your principal contributed (basis) into the Roth for the purpose of early distribution of principal, but since you're over 55 that really shouldn't matter.

I believe you're incorrect. Form 8606 is titled Nondeductible IRAs. Nondeductible IRAs only exist for traditional IRAs for which you've made contributions that you have not deducted from your income (generally people only do this to contribute to a Roth via the backdoor).
In form 8606, it says one of the purposes of the form is "distributions from Roth IRAs." But there is nothing to indicate that you have to report your contributions to your Roth. And to the best of my knowledge, you don't have to report your Roth contributions to the IRS.

The only way that a Roth IRA can affect your tax return, as far as I am aware, is if you have a sufficently low AGI to qualify for the Saver's Credit.

http://www.irs.gov/pub/irs-pdf/i8606.pdf
Excerpts:
Purpose of form:
-to report distributions from Roth IRAs
Who must file:
-if you convert from a Traditional IRA to a Roth IRA

You do not have to file Form 8606 solely to report regular contributions to Roth IRAs. But see "What records must I keep" later

What records I must keep:

To verify the nontaxable portion from your IRAs, including Roth IRAs, keep a copy of the following forms and records until all distributions are made:

Forms 5498, IRA Contribution Information, or similar statements you received each year showing contributions you made to a traditional IRA or Roth IRA

So yeah, in summary, I was wrong about the form. It's not for direct contributions to a Roth, but it should be used when converting to a Roth or taking distributions from a Roth. I knew direct contributions needed to be tracked but wasn't sure how, and didn't feel like looking it up. But thanks for calling me out johnny847. It forced me to look it up and hopefully I'll remember it perfectly for next time.

Keep the 5498's you receive from Vanguard each year at tax time. Track them on a spreadsheet or something for good measure. Report the distributions as they're made on 8606.

[johnny847]

Nice work.

Nothing special needs to be done at tax time. There is an IRS form (8606 I think) to track your principal contributed (basis) into the Roth for the purpose of early distribution of principal, but since you're over 55 that really shouldn't matter.

I believe you're incorrect. Form 8606 is titled Nondeductible IRAs. Nondeductible IRAs only exist for traditional IRAs for which you've made contributions that you have not deducted from your income (generally people only do this to contribute to a Roth via the backdoor).
In form 8606, it says one of the purposes of the form is "distributions from Roth IRAs." But there is nothing to indicate that you have to report your contributions to your Roth. And to the best of my knowledge, you don't have to report your Roth contributions to the IRS.

The only way that a Roth IRA can affect your tax return, as far as I am aware, is if you have a sufficently low AGI to qualify for the Saver's Credit.

http://www.irs.gov/pub/irs-pdf/i8606.pdf
Excerpts:
Purpose of form:
-to report distributions from Roth IRAs
Who must file:
-if you convert from a Traditional IRA to a Roth IRA

You do not have to file Form 8606 solely to report regular contributions to Roth IRAs. But see "What records must I keep" later

What records I must keep:

To verify the nontaxable portion from your IRAs, including Roth IRAs, keep a copy of the following forms and records until all distributions are made:

Forms 5498, IRA Contribution Information, or similar statements you received each year showing contributions you made to a traditional IRA or Roth IRA

So yeah, in summary, I was wrong about the form. It's not for direct contributions to a Roth, but it should be used when converting to a Roth or taking distributions from a Roth. I knew direct contributions needed to be tracked but wasn't sure how, and didn't feel like looking it up. But thanks for calling me out johnny847. It forced me to look it up and hopefully I'll remember it perfectly for next time.

Keep the 5498's you receive from Vanguard each year at tax time. Track them on a spreadsheet or something for good measure. Report the distributions as they're made on 8606.

Heh it was useful for me too, I had never confirmed that you don't need to report Roth IRA distributions [typo, meant contributions].