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 downloaded software. If you use other software, please read:
Use H&R Block Download
H&R Block is in general less expensive than TurboTax. It has a downloaded version and an online version. The downloaded version is both less expensive and more powerful.
The downloaded Deluxe + State edition (or the Deluxe Federal-Only edition when you live in a state without an income tax) can handle pretty much everything. It often goes on sale for $20-25 on Amazon, Walmart, or Newegg, sometimes for under $20. It includes five federal e-filing. State e-filing costs extra but you can simply print and mail or use the printed forms to file on your state government’s website.
In-Plan Rollover
You can do the mega backdoor Roth in two ways — converting within the plan or withdrawing 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?
Let’s first look at converting to the Roth account within the plan. 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, your contributions earned $200. You converted $10,200 to your Roth 401(k) account.
I’m using 401(k) as a shorthand. It works the same in a 403(b). Now here are the entries into H&R Block software.
Go to Federal -> Income -> IRA and Pension Income (Form 1099-R).
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 401k 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.
We moved the money within the plan. The Roth 401k account is officially a “designated Roth account” in the plan.
That’s it. It’s as simple as that. 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 401k 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.
Rollover to Roth IRA
It’s just as easy to report the mega backdoor Roth if you took the money out of the 401k plan and sent it to a Roth IRA. We’ll use the same example as above except you did the rollover to a Roth IRA instead of to the Roth 401k account within the plan.
Enter your 1099-R as-is in the same way as above.
The IRA/SEP/SIMPLE box is still unchecked.
We’re still not a retired public safety officer.
The only difference is we rolled over to a Roth IRA this time.
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 401k 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.
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mervinj7 says
Awesome! Thanks for posting so quickly after my question.
jb says
Do you only get the “Which plan did you roll over your distribution into” prompt if you have a taxable amount? I have 2 1099-Rs which nothing taxable and never got that prompt to appear.
Thanks!
Harry Sit says
As you see here, choosing Roth 401k or Roth IRA didn’t affect Form 1040 Line 5 anyway. It doesn’t matter you didn’t get that choice as long as your Form 1040 Line 5 is correct.
JPS says
Thx for the info – can you also post an example of how to report a partial in-plan Roth conversion from an existing 401k using pre-tax amounts?
Harry Sit says
It’s the same as the In-Plan Rollover section except that the number in Form 1099-R box 2a matches box 1, and box 5 is zero or blank. And the number on Form 1040 line 5b matches line 5a, making the in-plan rollover fully taxable.
Nilesh says
Can you show how to handle this in downloaded edition of TaxAct Deluxe? There does not seem to be a way to designate that rolled over to Roth IRA amount was post-tax contribution to 401(k)? Thanks!
Nilesh says
sorry, meant TaxAct Premier downloaded edition, if that makes a difference.
Brian T. says
Thanks for the super clear instructions! I ended up getting two 1099-Rs, one for the after-tax contribution that I made, and one for the gains on those after tax contributions. The gains show distribution code G in box 7, and I rolled that into a regular IRA account. The one reflecting my after tax contributions show Code 1 in box 7, which I rolled into a Roth IRA account. Thoughts on how to handle the Code 1?
Brian T. says
OK, after I posted this question I went ahead and entered the two 1099-R’s as you instructed, showing code G and code 1, respectively. It went in without a hitch, no change to my taxes! Again, thanks for your help.
JPS says
My company 401k plan now offers automatic in-plan Roth conversions as soon the after-tax contributions are made, resulting in a minimal or close to zero cost-basis. Assuming this does not need to be reported on my 1040 return since they are no gains (or close to no gains)?
Harry Sit says
It still needs to be reported even though you have no taxable gains. The gross amount will show on the tax return.
Matt says
Thank you very much for your explanation! I am not utilizing the downloadable software but the online version and the online version does not give me the option to select into which plan I rolled over the money.
This prohibits me from filing as I receive the following error message:
“Code G indicates a direct transfer; therefore, box 2a should be zero. If there is an entry greater than zero in box 2a, contact your plan administrator. Please verify the code entered.”
Any help and advice would be greatly appreciated.