The Optometrist's Guide to Roth IRA and How to do a Backdoor Roth
Chapter 2A: How to do a Backdoor Roth with Vanguard | Step by Step Instructions
Updated for 2026 Tax Limits
In this chapter, we will show you a step-by-step guide (with screenshots) on how to do a Backdoor Roth for new investors. We will be using Vanguard as an example, but Fidelity and other major brokerages will have similar steps.
Before we get started, here are 4 requirements before attempting to do a backdoor Roth IRA:
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(1) You CANNOT have any tax-deferred money in any existing IRAs such as a traditional, SEP or SIMPLE
If you do, you need a strategy to move that money to a Roth-IRA (W2) or solo 401K (1099/S-Corp) via IRA rollover and be aware that there might be a tax bill due on the conversion.
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(2) Set up 2 Separate Accounts: Trad-IRA | Roth IRA
We will use the same two accounts to do the backdoor Roth conversion each year. So keep both accounts open!
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(3) Have the full amount $7,000 (for 2025 Limit) to fund for the 2025 Contribution first, then $7,500 for 2026
We recommend doing the full $7,000 in one step for the previous year first (2025) if you haven't done so.
⚠️ Then If you have another $7,500 to contribute, then you can make a 2026 contribution as well.
⚠️ DEADLINE: While you can CONTRIBUTE $7,500 for 2026 to a Trad/IRA until 4/15/27, you only have until 12/31/26 (of that year) to do the backdoor Roth conversion.
Note: During 2026, you can do $625 each month into a trad-IRA ($7,500 total) and select the standard "money market" fund BUT DO NOT INVEST ANYTHING until it is fully converted into the backdoor Roth IRA. You might get a few $1-2 in gains but IRS will round down to $7,500 end of the year.
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(4) Repeat for your spouse (if applicable)
You can contribute another $7,500 for your non-working spouse via Backdoor Roth IRA as well for 2026
Step 1: Open up an account with Vanguard
If you are new to Vanguard, it is pretty straight forward, so we won’t go through all the steps. Again, make sure you open BOTH Trad-IRA and Roth IRA accounts.
Step 2: Contribute $7,500 to your Traditional IRA First
Once you open both your Trad + Roth IRA accounts, go into your Trad IRA FIRST, you should automatically have a Vanguard Federal Money Market Fund (Settlement Fund). This is basically cash, and where we can use to hold any money for transactions.
Then click Contribute to the Trad-IRA account.
Tell Vanguard where your money is GOING TO for your 2026 Contribution (this amount will be $7,500), and it will automatically be placed in your Federal Money Market.
Next, select where the Money is COMING FROM? In this case, we are going to transfer it from a personal checking account. You can transfer it from other Vanguard accounts as well.
Next, consent to electronic delivery of the prospectus of the “Federal Money Market Fund”. This is basically telling you what the fund actually invests in, which in this case, is all cash.
Finally, you will click Accept and get a Confirmation Statement
Step 3: Wait 3-7 days for money to settle before making the Roth Conversion
It usually takes a 3-7 days for the $7,500 to transfer from your Checking account to your Vanguard Trad IRA. It might take up to 6+ days for your money to settle in your Trad IRA before you are able to convert.
⚠️ DEADLINE: While you can CONTRIBUTE $7,500 for 2026 to a Trad or Roth IRA until 4/15/27, you only have until 12/31/26 (of that year) to do the Backdoor Roth conversion.
Step 4: Convert your $7,500 to a Roth IRA via Backdoor
- Once your $7,500 Settles in your Trad-IRA (usually takes 3-7 days)
- Go to the top Menu "My Accounts"
- Within your Trad-IRA account, select "Convert to Roth IRA", once your $7,500 has settled in your available balance
Read through all the disclaimers and make sure you have the following checklist before proceeding.
You will be given some information that the conversion is a taxable event that cannot be reversed. Well this isn’t exactly correct, because the final net contribution is a non-deductible $7,500 contribution. But you must agree to proceed without withholding taxes
Select the Trad IRA where the funds will be converted from, and it will automatically be sent to Vanguard Money Market Fund (VMFXX)
You want to CONVERT ALL SHARES of the Trad-IRA account, then choose ROTH IRA account to convert funds to.
Select Your Preference for Tax withholding notice
You will be given some information that the conversion is a taxable event that cannot be reversed. Well this isn’t exactly correct, because the final net contribution is a non-deductible $7,500 contribution.
- For 2020, there is a new tax reform that eliminates the ability to re-characterize (or undo) Roth Conversions.
⚠️ Important: You have to verify your 0% Federal Withholding election on Vanguard online FORM W-4R
Once you verify everything it should show a 0% Federal Withholding along with a 0% State income withholding since this is not a TAXABLE event if done correctly
Next, select how you like to receive your tax withholding notice, I opt for email address only
(b) Review and Submit and be aware that this a permanent action.
Step 5: Select your investment funds within your Roth IRA
Remember to buy your funds once you have the $7,500 in the money market. BUY YOUR INVESTMENT FUNDS. Think of your Roth IRA as an additional retirement accounts, so choose your investments accordingly.
Financial Reminder
"Please remember that once you convert money market fund (basically cash) from your Trad IRA to Roth IRA, you actually have to chose + BUY the Index Funds like a Vanguard Total Stock Index (VTI) for it to grow. It is surprisingly too commonplace to see many doctors who are shocked why their Roth IRA return 0% for the last 5 years because they forgot to select the investments"
Step 6: Repeat for your Spouse (if applicable)
If you are married and file jointly, then your spouse can also do a backdoor Roth for an additional $7,500 even if he or she doesn't have an earned income.
Step 7: Fill out Form 8606 in your 1050 during your tax season
Here is what your IRS form 8606 should look like, but if you want additional instructions from IRS, find out more here.
*Note: This is example of 2023, but your number should be $7,000
TurboTax user: Check out the Finance Buff’s Direction on TurboTax or Check out Youtube Step-by-step direction
Step 8: Repeat every year before April 15 (Tax Deadline)
I usually like to do my Roth IRA backdoor every year around January. I do the full $7,500 amount on the same month of every year. Remember this will go into your Money Market Fund, so you will have plenty of time to choose your investments. If you forgot to do it for 2025, you have until 4/15/2026 to convert $7,000 for 2025
I recommend selecting your investment funds as soon as possible, so your money can start working sooner.
