[Updated on January 28, 2024 with screenshots from FreeTaxUSA for 2023 tax filing.]
A Mega Backdoor Roth means making non-Roth after-tax contributions to a 401k-type plan and then moving it to the Roth account within the plan or taking the money out (with earnings) to a Roth IRA.
It’s a great way to put additional money into a Roth account without having to pay much additional tax. Not all plans allow non-Roth after-tax contributions but some estimated that 40% of people can do it.
Suppose your plan allows it and you did a Mega Backdoor Roth. You’ll receive a 1099-R form from your plan in the following year. You’ll need to account for it on your tax return.
Here’s how to do it in the inexpensive online tax software FreeTaxUSA. If you use other tax software, please read:
- How To Report Mega Backdoor Roth in TurboTax or
- How To Report Mega Backdoor Roth In H&R Block Tax Software
Within the Plan Or To Roth IRA
You can do the Mega Backdoor Roth in two ways — convert within the plan or withdraw to a Roth IRA. Converting within the plan is much easier, and many plans automate the process. Withdrawing to a Roth IRA also works. See the previous post Mega Backdoor Roth: Convert Within Plan or Out to Roth IRA?
Here’s the scenario we’ll use as an example:
You contributed $10,000 as non-Roth after-tax contributions to your 401(k). By the time you converted the money to the Roth account within the plan or transferred it to your Roth IRA, your contributions earned $200. You converted $10,200 to your Roth account.
I’m using 401(k) as a shorthand. It works the same in a 403(b). If you did a split rollover — after-tax contributions to a Roth IRA and the earnings to a Traditional IRA — and the plan administrator issued one 1099-R for your two rollovers, you’ll need to split your 1099-R into two. See One 1099-R Form for Two Rollovers in TurboTax and H&R Block.
1099-R Entries
Now the entries into FreeTaxUSA. Go to Income -> Common Income -> Retirement Income (1099-R). Enter the numbers from your 1099-R as-is. Ours looks like this:
The gross amount converted to the Roth 401k account shows up in Box 1. The earnings are in Box 2a. If you didn’t have earnings in your conversion, Box 2a is zero. “Taxable Amount Not Determined” under Box 2b is left unchecked. The amount of your non-Roth after-tax contributions (“the principal”) should be in Box 5. Box 7 has code “G” and the IRA/SEP/SIMPLE box is unchecked.
Leave the rest at the default unless your 1099-R has values in other boxes.
Rollover Destination
Answer “Yes” if you converted to the Roth account within the plan. Answer “No” if you took the money out of the plan to your Roth IRA
The “No” answer to the question opens up a second question. Confirm that you sent the money to a Roth IRA.
That’s it. It’s as simple as that.
Verify on Form 1040
Now we verify we’re taxed only on the $200 in earnings, and not on the $10,000 non-Roth after-tax contributions.
Click on the three dots on the top right above “Your Retirement Income (Form 1099-R)” and then click on “Preview Return.”
A draft 1040 form pops up. Look at Line 5. Line 5a shows the gross amount transferred to the Roth account. Line 5b shows we’re taxed only on the $200 in earnings. If you didn’t have earnings in your rollover, Line 5b will be zero.
Close the draft 1040 form popup to go back to the interview.
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Frugal Professor says
Thanks for sharing!
Largely inspired by your writing, I think I’ve almost convinced my university system to allow the mega-backdoor Roth (with perhaps 75% probability of happening). It’s hard dealing with bureaucracies, but I’ve already successfully convinced them to bring the HSA in-house (w/ Fidelity) to leverage the payroll tax benefits that were previously unavailable to me.
With any luck, I’ll be referring back to this tutorial for when I file my taxes next year…. It certainly looks similar to what I’m already doing for the (baby) backdoor Roth at FreeTaxUSA.
Harry Sit says
Nice! Fidelity’s automated per payroll in-plan rollover works beautifully.
KD says
I too have the automated per payroll in-plan rollover.
In my 1099-R for mega backdoor Roth, Box 5 figure is same as Box 1. Box 2a is zero.
In my e-filing I forgot to put in Box 5 number.
The values in the tax return are correct and do not change due to the omission.
Do I need to file an amended return?
Harry Sit says
As long as the 1040 form is correct I don’t think you need to file an amended return.
Mark says
These are great! Can you do one for CreditKarma?
In addition, some of us do both a Backdoor Roth from a traditional IRA (form 8606) as well as the Mega Backdoor Roth from a 401K. Your thoughts what software can best do both of these?
Thanks again!
Harry Sit says
TurboTax, H&R Block, and FreeTaxUSA all work well for both Backdoor Roth and Mega Backdoor Roth. I have walkthroughs for these three. Sorry I’m not going to do another one for CreditKarma.
B. says
Thank you very much for this guide!
I’d like to make sure I’m entering Box 16 (State Distribution) correctly. My 1099-R shows:
1 – Gross distribution: $19,500.00
2a – Taxable amount: $0.00
5 – Employee contrib/desig Roth contrib or insurance premiums: $19,500.00
7 – Distribution code(s): G
14 – State tax withheld: $0.00
15 – State/Payer’s state no.: CA 80275704
16 – State distribution: (blank)
FreeTaxUSA’s help section on this says: “What if Box 16 of my 1099-R is blank?
If the state distribution in Box 16 of your 1099-R is blank and Box 14 or 15 has an amount, then enter the same amount in Box 16 that is shown in Box 1, Gross Distributions of the 1099-R.”
This is a bit unclear to me. Box 14 does “have an amount,” but it is $0. So, should I follow FreeTaxUSA’s help instructions, and enter $19,500 in Box 16 (the same as Box 1)? Or should I leave it blank?
Thanks again.
Harry Sit says
Try either making Box 14 blank or putting the Box 1 amount in Box 16. It shouldn’t make any difference.
reddy says
Hello SIr,
I forgot to enter 1099-R in the original 2022 return. After going through your link, I amended the return. The 1040 now shows 5a with the amount from 1099-R.
I also see Form 5329 in the amended return with excess contributions (rows 23 and 24) populated with that amount.
Did I do any mistake while amending the return? Is form 5329 supposed to be filed with excess contribution?
Thank you.
Harry Sit says
You must have made a mistake. Form 5329 isn’t supposed to be generated. The contribution isn’t an excess contribution.
reddy says
Yes. I did a mistake. Not sure what it is. But, the amended return now does not have form 5329.