[Updated on January 16, 2023 with screenshots from H&R Block tax software for 2022 tax filing.]
A Mega Backdoor Roth is different from a regular Backdoor Roth. It’s done by making non-Roth after-tax contributions to a 401k-type plan and then moving it to the Roth account within the 401k-type 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 you did a Mega Backdoor Roth last year. You should have received a 1099-R form from your 401k plan provider. You’ll need to account for it on your tax return. Here’s how to do it in H&R Block tax software.
Use H&R Block Download
The screenshots in this post are from H&R Block Deluxe downloaded software. The downloaded version is both less expensive and more powerful than the online version.
If you haven’t paid for your H&R Block online filing yet, you can buy H&R Block downloaded software from Amazon, Walmart, Newegg, or Office Depot and switch to the downloaded software. If you’re already too far along with your entries, make this your last year of using the online version and switch to the downloaded version next year.
If you use other software, please read:
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. Transferring 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). Here are the entries into H&R Block software.
Go to Federal -> Income -> IRA and Pension Income (Form 1099-R). You can import the 1099-R or enter it manually. I’m showing manual entries.
Our 1099-R is a normal 1099-R. Enter the numbers from your 1099-R as-is. Ours looks like this:
The gross amount converted to the Roth account shows up in Box 1. The earnings are in Box 2a. If you didn’t have earnings in your rollover, Box 2a is zero. “Taxable Amount Not Determined” under Box 2b is left unchecked. The amount of your non-Roth after-tax contributions shows in Box 5. Box 7 has code G.
The IRA/SEP/SIMPLE box in Box 7 on your 1099-R should NOT be checked.
We’re not a retired public safety officer.
The Roth 401k account is officially a “designated Roth account” in the plan. Choose “Designated Roth account” if you converted within the plan. Choose “Roth IRA” if you took the money out of the plan to your 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 “Forms” in the top menu bar. Double-click on “Form 1040 and Schedules 1-3” in the forms list.
Scroll down to find Line 5. The gross amount transferred to the Roth account shows on Line 5a. Line 5b shows you’re taxed only on the earnings. If you didn’t have earnings, Line 5b will be zero.
When you’re done looking at the form, close the forms window to get back to the interview.
Say No To Management Fees
If you are paying an advisor a percentage of your assets, you are paying 5-10x too much. Learn how to find an independent advisor, pay for advice, and only the advice.