[Updated on January 16, 2023 with screenshots from H&R Block tax software for 2022 tax filing.]
A Mega Backdoor Roth is totally different from an everyday Backdoor Roth. It’s carried out by making non-Roth after-tax contributions to a 401k-type plan after which transferring it to the Roth account inside the 401k-type plan or taking the cash out (with earnings) to a Roth IRA.
It’s a good way to place extra cash right into a Roth account with out having to pay a lot extra tax. Not all plans permit non-Roth after-tax contributions however some estimated that 40% of individuals can do it.
Suppose you probably did a Mega Backdoor Roth final 12 months. It is best to have obtained a 1099-R kind out of your 401k plan supplier. You’ll have to account for it in your tax return. Right here’s how one can do it in H&R Block tax software program.
Use H&R Block Obtain
The screenshots on this publish are from H&R Block Deluxe downloaded software program. The downloaded model is each cheaper and extra highly effective than the web model.
For those who haven’t paid in your H&R Block on-line submitting but, you should buy H&R Block downloaded software program from Amazon, Walmart, Newegg, or Workplace Depot and change to the downloaded software program. For those who’re already too far alongside along with your entries, make this your final 12 months of utilizing the web model and change to the downloaded model subsequent 12 months.
For those who use different software program, please learn:
Throughout the Plan Or To Roth IRA
You are able to do the mega backdoor Roth in two methods — convert inside the plan or withdraw to a Roth IRA. Changing inside the plan is way simpler, and plenty of plans automate the method. Transferring to a Roth IRA additionally works. See the earlier publish Mega Backdoor Roth: Convert Inside Plan or Out to Roth IRA?
Right here’s the state of affairs we’ll use for instance:
You contributed $10,000 as non-Roth after-tax contributions to your 401(ok). By the point you transformed the cash to the Roth account inside the plan or transferred it to your Roth IRA, your contributions earned $200. You transformed $10,200 to your Roth account.
I’m utilizing 401(ok) as a shorthand. It really works the identical in a 403(b). Listed here are the entries into H&R Block software program.
1099-R Entries
Go to Federal -> Earnings -> IRA and Pension Earnings (Kind 1099-R). You possibly can import the 1099-R or enter it manually. I’m displaying handbook entries.
Our 1099-R is a traditional 1099-R. Enter the numbers out of your 1099-R as-is. Ours seems like this:
The gross quantity transformed to the Roth account exhibits up in Field 1. The earnings are in Field 2a. For those who didn’t have earnings in your rollover, Field 2a is zero. “Taxable Quantity Not Decided” underneath Field 2b is left unchecked. The quantity of your non-Roth after-tax contributions exhibits in Field 5. Field 7 has code G.
The IRA/SEP/SIMPLE field in Field 7 in your 1099-R ought to NOT be checked.
We’re not a retired public security officer.
Rollover Vacation spot
The Roth 401k account is formally a “designated Roth account” within the plan. Select “Designated Roth account” in case you transformed inside the plan. Select “Roth IRA” in case you took the cash out of the plan to your Roth IRA.
That’s it. It’s so simple as that.
Confirm on Kind 1040
Now we confirm we’re taxed solely on the $200 in earnings, and never on the $10,000 non-Roth after-tax contributions.
Click on on “Varieties” within the prime menu bar. Double-click on “Kind 1040 and Schedules 1-3” within the kinds checklist.
Scroll down to search out Line 5. The gross quantity transferred to the Roth account exhibits on Line 5a. Line 5b exhibits you’re taxed solely on the earnings. For those who didn’t have earnings, Line 5b will probably be zero.
If you’re carried out wanting on the kind, shut the kinds window to get again to the interview.
Say No To Administration Charges
In case you are paying an advisor a proportion of your property, you’re paying 5-10x an excessive amount of. Discover ways to discover an impartial advisor, pay for recommendation, and solely the recommendation.