By Dr. Jim Dahle, WCI Founder
Every year or two, Vanguard changes its process slightly. If you understand the Backdoor Roth IRA, these little tweaks are no big deal. If it's your first time, they can be confusing. We periodically update this post, but if you're doing this process don't be surprised if it looks a little different from what you see here. The most recent update uses screenshots from 2025. Here's all you need to know to do a Backdoor Roth IRA with Vanguard:
Step 1: Contribute to Vanguard Traditional IRA
First, go to your traditional IRA account and click on “Transact”. That will give you a drop down menu where one of the choices is “Contribute to IRA.” Click on that.
This will bring you to this page.
It shows you contributions made so far for years that are eligible still for contributions. You can see we previously maxed out the 2024 contribution, so all that is left is a 2025 contribution. And notice also that it is just going into cash (the federal money market (settlement fund) so it doesn't have a loss in between the contribution and conversion step. Then you need to choose where the money is coming from.
You'll have multiple choices, including all the banks you've linked to this account, sending Vanguard a check, exchanging from another fund, or using your settlement fund. If you can, use the settlement fund in your brokerage account. It will decrease the amount of time for money to “settle” and allow you to complete the Backdoor Roth IRA process a few days faster. This is a bigger deal at Fidelity than at Vanguard, but I've had to wait up to a week between contribution and conversion at Vanguard before when I used money from my bank account to make the IRA contribution.
You'll likely end up at this screen next. In this case, we took the money out of the money market (settlement) fund in our brokerage account, so $7,000 from there and hit continue.
That all looks okay, so hit continue.
Hit accept here and it brings you to the review and submit page.
Check it over and hit submit and you get the confirmation page.
Congratulations! You've made a contribution to a traditional IRA and left the money sitting in cash. At Vanguard, you're done for the day. If you used your settlement fund, come back tomorrow (or the next business day). If you used your bank account, come back in a few days after the contribution “settles” to do step 2.
Step 2: Convert Vanguard Traditional IRA to Roth IRA
So on Day 2, you go to your traditional IRA and hit the “Convert to Roth IRA” button.
There are other ways you can get to the same place, like going to the “exchange funds” link (on the buy and sell menu). But this way seems easiest. You'll then come to a screen that looks like this.
This page is just a warning you don't need to worry about. Hit the “Start my Roth conversion” button and you'll go to the next page.
There's a lot of good stuff on this page, but you can ignore it all if you're a typical white coat investor doing your annual Backdoor Roth IRA. Hit continue.
I love this page. It doesn't ask you if you want to withhold taxes (you don't), it just has you agree not to. Perfect. (You're not going to owe taxes on the conversion of a non-deductible contribution anyway and if they did it would just mean you ended up with less in your Roth IRA and had to wait for your tax refund to get the money back.) Hit “I agree” and then “Continue” and go to the next page.
I like this page too. It's Vanguard's new look and has a nice bar at the top to track your progress through the Roth conversion. Hit continue and move on to the next page. Note the page may give you a warning that looks like this:
That just means the money in your traditional IRA hasn't settled yet. Come back in a day or three when it has. If it is settled, the next page will look like this.
If you're doing your Backdoor Roth IRA process right, you just convert the entire account because all that is in there is this year's IRA contribution. Don't worry about the tax warning. Remember some Roth conversions are taxable, but not in the Backdoor Roth IRA process. Hit continue and go to the next page.
This page seems a little odd when you only have one Roth IRA, but I guess it's necessary. Hit continue.
This is another odd page, but I guess it's an IRS requirement. I don't need a notice saying they're not going to withhold taxes that aren't owed anyway but you can get one if you want. Then hit continue.
This is your review page to double check before submitting the order. The astute observer will notice this form says the conversion amount is $8,000. That's because I used screenshots from both Katie's and my Roth conversion this year and one of us turns 50 this year, and so is eligible for a “$1,000” catch-up contribution for the first time. Your conversion amount should be about the same as your contribution amount. If you have a few dollars extra in there from earnings while sitting in the traditional IRA, convert those too. You'll owe tax on those few dollars but you can afford it I'm sure.
This is just the confirmation page. Go ahead and hit exit. Note that it says you may have to wait 2 days for the conversion to be complete. That wasn't the case for me. The money was immediately available to invest, so I did. Don't forget to invest your Roth IRA money or it'll just sit in cash.
Step 3: Choose Vanguard Roth IRA Investments
Go back to the page listing all your accounts and click on the Roth IRA account.
Click on “Transact” and then “Buy Vanguard mutual fund” (or whatever you want to invest in) and you'll go to a page where you can do so. Mine looked like this.
As you can see, this entire Roth IRA is already invested in the Vanguard Real Estate Index Fund, so this new contribution will go there as well. I just hit “Buy” and it takes me to this page.
So I put in $8,000 ($7,000 when doing Katie's Roth IRA) and hit “Continue order” and on to the next page.
Once more, you just have to hit “Preview order” and move on to the next page. I like the new section here where they update you on where you stand for this year's and last year's IRA contributions.
And the confirmation page for your trade/order.
That's it, you're done until next year. Don't forget to do a spousal Backdoor Roth IRA if available.
The process will be slightly different at Fidelity, Schwab, and other IRA custodians, but the basic steps will remain the same.
If you have a question about the Backdoor Roth IRA and not Vanguard specifically, you should FIRST read this very in-depth Backdoor Roth IRA Tutorial before asking your question in the comments below. I promise you there is a 99% chance your question is answered there.
What do you think? Do you do your Backdoor Roth IRA(s) at Vanguard each year? What problems have you run into? Any questions? Comment below!
Hello, I was able to successfully contribute $6500 for 2023 to a traditional IRA, and then I created a Roth IRA and converted the $6500 over to Roth, in the form of a Vanguard Federal Money Market Fund. However, when the funds appeared in my Roth, the total amount was $6500.94 in VFMXX. However, when I had converted the money over to Roth, I had converted only $6500. I have read about the “Pennies” situation where money sits in the traditional IRA and gains interest. However, this was not the case in my situation, and I’m sure I only converted $6500 from my traditional IRA. Do you think this is just interest on the $6500 over the course of a day or so? Thank you!
Yes. It’s fine. There is no limit on conversion anyway, only contribution. If they put $6501 on your 1099-R you’ll owe tax on $1. If they don’t, you don’t owe any tax on the conversion.
Ok thank you. Vanguard issued me a 1099 a few months ago, before I had done my Backdoor Roth for 2023. Would they send me a new 1099 form again, now that I’ve done the Backdoor Roth for 2023, admittedly late on my end?
The 1099R showing the conversion will come for 2024 (in 2025). Just make sure you report the contribution for 2023 whether you get a 1099 or not. That transaction doesn’t normally show on the consolidated 1099 Vanguard makes available in January.
I placed $6000 in my traditional IRA at the end of December 2022 and did a Backdoor Roth IRA conversion the first week of 2023. I thought that counted for 2022. In October I did another Roth conversion of 6499.98. I received a 2023 1099-R for $12507.66. Would I pay tax on this full amount. The amount I contributed is after tax
No. None of that should be taxable. I bet box 2b is checked on that 1099-R isn’t it?
Yes, it’s checked.
Then you can claim whatever you need to for that line. The number in the box on the 1099-R no longer matters.
I read somewhere that when you do the conversion each year you need to open a *new* ROTH IRA account and not reuse the existing ROTH IRA account from the previous conversion. Is this true?
No. I’ve been using the same one for 15 years straight.
Thank you for this. This may have already been answered but I didn’t see it. I am planning to do my first ever backdoor roth conversion this year. For me it should work well but my wife has an IRA from when she left her previous employer with about 11k in it. My understanding is that I cannot do a backdoor roth conversion for her because even if we do the maximum allowed of $7,000 we would still have some left in her IRA and that would be affected by the pro-rata rule and we would end up paying taxes on it. I also am concerned about contributing to her IRA because the contributions would be after tax (my pre-tax dollars are going into my 403b account through my employer which I am maxing out and she is not currently working) so we would be getting taxed before contributing to her IRA and after withdrawal from here IRA at retirement. Is my line of thinking correct? And if so what would you suggest my next steps be?
You CAN do a conversion, it’ll just be pro-rated so you probably shouldn’t.
You can also do a non deductible contribution, but I probably wouldn’t. I would probably just invest “her” $7K in taxable.
Thank you!
Hello sir!
FYI. It seems that Vanguard changed their conversion process on their website. There is a ‘Convert to Roth’ button available in my Traditional IRA section. After clicking on it yesterday, I selected convert all and confirmed that I didn’t need an email notice. Today, I received confirmation of the transaction and expected to complete Step 3 of your tutorial. However, Vanguard already added the money to the Roth version of the Trad IRA funds I converted from.
In short, it seems that Steps 2 and 3 are now one step?
Thanks!
Awesome! Glad to hear about that update. I’ll watch for it next year and maybe we can update the screenshots and description.
Why are you investing the money while it is in the traditional IRA? You usually don’t want to do that. Just leave it in cash/settlement fund/money market fund while in the traditional IRA. But yes, if they’re doing that it kind of combines those two steps doesn’t it?
Hi, Thanks so much for your screenshots
My salary just increased midway through this year, so now I will exceed the income limit. I followed your advice and set up a traditional IRA today with vanguard, and anticipate continuing to contribute monthly to my Roth via the conversion button.
However, does that mean that I need to somehow request that my contributions for the first half of this year be either converted too?
thanks this Q and A thread and your post has been helpful
If you make enough to have to contribute via the Backdoor, you make enough to do it all at once. Simplify your life and quit doing it monthly.
If you made direct Roth IRA contributions earlier in the year, they’ll need to be recharacterized.
https://www.whitecoatinvestor.com/ira-recharacterizations/
Again, sudden increase in income led me to now utilize the back door Roth. Monthly was up until the increase. You’re making an assumption without all the facts
Please share the facts. Have you made direct Roth IRA contributions in 2024? If so, they’ll need to be recharacterized. If not, no problem. You CAN do monthly traditional IRA contributions and conversions whenever you want, but I wouldn’t do that. I’d do it all at once for the year to minimize complexity.
Can we convert from SEP IRA to ROTH IRA using above instructions? Thanks in advance
Pretty much.
Hello,
I have a traditional IRA account with a zero balance to do the Roth conversion. But i don’t have a Roth account to transfer it to. How do I get a Roth account to transfer it to?
Thank you!
You open one.
1) Open traditional IRA.
2) Put $7K in it
3) Open Roth IRA
4) Move $7K to Roth IRA.
Make sense?
I understand that. But right now vanguard is telling me in my traditional IRA has “no holdings available to convert.” What does that mean and how do I get around it?
I suspect the money isn’t settled yet. Give it a few days or a week and I bet it goes away.
Thanks for all your work man! I just want to make sure I’m understanding the tax documents correctly. If I make a contribution/conversion in February 2025. I file the Form 8606 on next years 2025 return correct? I thought I read in one forum that the contribution had to be reported on this years 2024 return but your guide says we should not be filing a Form 5498. Could you please help me clarify? Thanks
File a 2024 contribution on a 2024 8606 and a 2025 contribution on a 2025 8606. File conversions on the return for the year you did them in. Not sure how to say it more clearly.
I opened a traditional IRA with Vanguard as I only had my Roth and stocks before. I skipped the step of putting money into the money market fund, then transferring to the traditional IRA. I went straight from my bank to the traditional IRA. Is this going to cause any issue when I convert to the Roth IRA or is it still okay for the backdoor?
It’s still okay. Remember the difference between accounts (traditional IRA, Roth IRA, taxable account etc) and investments (stocks, mutual funds, money market funds etc.).
What’s your traditional IRA money invested in currently?
It’s not currently invested in anything. My income significantly increased the last year since I became an attending so I have only used a Roth IRA the last decade. I opened the traditional IRA with the intention of doing the backdoor Roth. So the $7k I transferred into the traditional IRA just hit today. My plan was to convert to Roth and then invest in the VTSAX/VTIAX like I have with my other accounts.
In 2024, I selected my bank for the “Where’s the money coming from”, resulting in a hold for a few days which allowed some dividends to accrue creating the “pennies” 8606 situation. This year, I tried to take your advice and utilize funds within Vanguard (I created a new standard brokerage account couple weeks ago, put it in money market fund, and then transferred 7k from there into my traditional IRA in order to Roth convert) and I’m still getting a hold on Day 2 preventing the conversion. Am I doing something wrong here? I guess I’ll have to hawk the Vanguard site to convert as soon as it lets me, but kind of annoying that this happened 2 years in a row!
It’s not uncommon to have to wait a few days.
On about 3/12, I initiated a $7k contribution to my Trad IRA. The amount settled in the money market fund on around 3/14. I didn’t notice it had settled until 3/17, at which time I followed the process as outlined. The Trad IRA balance showed a zero balance immediately. A day later (today) I received the notice that it has been completed. The Trad IRA still shows a balance of $0, but the transaction history shows an outgoing/incoming conversion of $7002.43. there was a $2.43 dividend. Since I’m seeing the $0 balance, this isn’t an issue re: pennies right? I actually did convert the full amount??
Yes. Sounds like you’ll owe tax on $2.
Need an answer to a comment from above,
I have IRAs at three different firms, a sep ira; a self directed ira, and a regular iRA,
To do back door Roth at vanguard or fidelity or anywhere DO I NEED TO CLOSE ALL TYPES OF IRAs at all the firms?
Thanks for your time and effort and all the help you guys offer to all your fans.
You don’t need to close them, but if you have money in them on 12/31 of the year you do it, the Roth conversion step of your Backdoor Roth IRA process will be prorated.