Vanguard Traditional IRA - Interest on Money Market fund?

Submitted by DMball t3_127w0zf in personalfinance

Am I earning interest on my money market fund (VMFXX) in vanguards traditional IRA? I'm holding it in the traditional IRA until I hit the max contribution amount, which I'll then rollover to Roth. I understand the Money Market fund has a pretty nice yield, however I have been contributing to the money market fund since January and I do not see anywhere that shows i've earned interest on the money. Can someone guide me to where I can find this? Or is there something I'm misunderstanding?

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DeluxeXL t1_jeg2usq wrote

Yes, money market fund earns interest just like a HYSA. The interest goes right back into the fund as additional shares.

Also, you should convert ASAP. You want the growing to happen in Roth IRA, not traditional IRA.

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DMball OP t1_jeg95n3 wrote

Can you expand on why you want the growing to happen in the Roth? Is that more optimal than the high yeild of the money market fund in the traditional?

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DeluxeXL t1_jega925 wrote

Growth in Roth IRA is completely tax-free assuming you only do qualified withdrawals.

Growth in traditional IRA is tax-deferred until you withdraw or convert. Then it's treated as ordinary income when you withdraw or convert.

Also, since you use Vanguard, did you know Roth conversion is as simple as clicking "Convert to Roth IRA" on the traditional IRA? It'll lead you to a page where you select what things to convert to Roth IRA. You can convert money or shares without needing to sell.

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Liquidretro t1_jeg3110 wrote

Yes you should be earning interest but it's one of the most conservative investment options available, so it's not a ton of interest. https://investor.vanguard.com/investment-products/mutual-funds/profile/vmfxx

I don't understand your strategy of contributing to a traditional IRA and then rolling it to a Roth. Why don't you just contribute to a Roth initially? Your max contribution per year is between all IRA accounts, roth or traditional. Can you explain why you are trying to do it this way?

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DMball OP t1_jeg4fs1 wrote

Sorry, the term is "Backdoor" roth. Income limits are too high to contribute to a Roth initially.

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Also the VMFXX says the SEC 7 day yield is 4.76%. I haven't seen a cent of interest. When does it get paid or where do I view it?

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Liquidretro t1_jeg8a7x wrote

In your OP you never mentioned you were doing a backdoor Roth IRA. You should edit your OP. Even then I don't understand why you are keeping it in essentially cash before doing the conversion. https://www.investopedia.com/terms/b/backdoor-roth-ira.asp

As mentioned above the interest goes to shares not dollars.

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DMball OP t1_jeg8zqe wrote

My apologies, although not sure why it matters.

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I'd prefer to keep it in cash as I contribute and build up to the max and then rollover all at once. This prevents me from losing money in investments (and having to sell to rollover) if the market goes down. Essentially this is short term savings so ideally i'd love to reap the high yield of the money market fund before rollover and investing in ETFs for long term savings.

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PalaHeels t1_jeg64uc wrote

Look in your transaction history on the IRA. Every last day of the month, you should see a dividend payment (that’s your interest) and a reinvestment of the same amount (putting the interest into VMFXX).

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Jmb3930 t1_jegi6do wrote

" I'm holding it in the traditional IRA until I hit the max contribution amount, which I'll then rollover to Roth." Not understanding what this means?

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