Since it's tax season, I thought I'd post a friendly reminder that, if you make after tax mega backdoor Roth contributions through your 401k, you will get a 1099-R that you should report on your tax return.

Mine is with Fidelity, and they report the form in a different place than my consolidated 1099 (for my personal accounts). It requires a separate log-in to retrieve the 1099-R for my after tax 401k contributions.

I found them today, and it was (of course) after I filed my 2024 return. I had to file an amended return for 2023 (easy to do through TurboTax and didn't cost anything), and I'm going to have to file a amended return for 2024 in a couple of weeks.

If you make this contribution and haven't filed, yet, make sure you go find the 1099-R. It won't change anything with respect to your refund or what you owe, but you are supposed to report it.

What is a mega back door Roth 401k?

Or what you are referring to

Mega backdoor Roth contributions are after tax contributions to a traditional 401k that are then rolled over to a Roth by the plan administrator. Not all 401ks allow for it.

These are contributions made after you hit the pre-tax limit.

You can also execute this through a traditional IRA if you don't already have an IRA. Where you can get stuck is if you have a previous employer 401k you rolled into an IRA instead of the next 401k.

Ragoo said:

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You can also execute this through a traditional IRA if you don't already have an IRA. Where you can get stuck is if you have a previous employer 401k you rolled into an IRA instead of the next 401k.

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This is the backdoor Roth, which is what I used to do until I rolled over an old 403b to an IRA. I can't do that anymore without having to pay tax on the rollover.

Correct me if I'm missing something but the backdoor Roth you are describing is limited to the $7000 contribution.

If you do a mega backdoor Roth, you are bound by the max 401k contribution limit, which is $69,000 (combined employee and employer).

So, if you max out the pre-tax contribution of $23k, you can put as much as another $46k in your 401k after tax, and then roll that over to a Roth.

I don't know of any other way to get that much into a Roth without doing the 401k conversion (mega backdoor Roth).

Good advisory, will certainly look into this to make sure I'm not missing anything. Been doing this for several years so hopefully I haven't been missing it...

The good thing is it's after tax dollars so it shouldn't be that big a deal, right?

Making the contribution to my 401k and then having the plan administrator do the conversion is no big deal at all. They handle it all for me.

Now when I had my own private Roth and I was doing the backdoor conversion through an IRA, it was a little bit more paperwork. And where I got into trouble was the year I rolled my 403b into an IRA. The IRS treats all of your IRAs as one big account, so if you have a bunch of pre-tax contributions and then try to do a $7k after tax contribution and roll it over to a Roth, you will get taxed again on that $7k when you file it with the IRS. So DON'T do this.

Appreciate it! I was trying to ask specifically about the 1099-R that you get separately from 401k administrator for the Mega-Backdoor.

I have done the standard backdoor for a while also and purposely make sure I never have Traditional IRA funds in order to avoid the pro rata rule. If I ever leave my current employer I'll have to make a decision on what to do with it in order to keep doing regular backdoor contributions, depending on my income.

As an aside, the mega backdoor has been a fantastic way to get money into Roth IRA, feel very fortunate to be able to take advantage of it while relatively young. More people should look into it.

File5 said:

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Appreciate it! I was trying to ask specifically about the 1099-R that you get separately from 401k administrator for the Mega-Backdoor. I already do the backdoor and purposely make sure I never have Traditional IRA funds in order to avoid the pro rata rule. If I ever leave my current employer I'll have to make a decision on what to do with it in order to keep doing regular backdoor contributions

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Oh, yeah…that's easy-peasy. I had to call Fidelity originally to specify that I wanted my after tax-contributions rolled over to a Roth. If I had just used my online portal to designate after-tax contributions, they would have defaulted to my regular 401k (so I wouldn't get the tax advantage on the earnings).

But after that initial call/set-up, I can change contributions online with no problem. Mine are a percentage of my salary, which is kind of annoying, but I've adapted.

I can't move the after tax $ to any other investments other than what's already set up for my 401k account, but that's ok by me. I think some plans might allow you to move money around and reinvest in other funds.

The 1099-R thing is just a minor annoyance. Idk why it's in a different place from my other statements and docs. But I did get an email reminder (I just think I ignored it last year).

Good info! This area appears to be extremely company plan-specific and should be streamlined so that more people can take advantage IMO. Doesn't make sense that I at a company with a specific plan can do this but others cannot just based on where they work. But hey, that's how it goes...

The way ours works is I can do the online portal dictating after tax percentage, and Fidelity automatically tracks those. Then I have to manually call to roll those funds over to my Roth IRA every few months in order to minimize taxes on earnings. There's no automatic rollover option in my company plan but that's ok, at least I can still do it.

Regarding investment options in the 401k (not Roth stuff, all that is self directed) I found that I could use their self-directed investment option (can't remember the name off the top of my head), but my company plan only allows for half of your assets to be that. The other half you are limited to Fidelity funds. I found the Fidelity fund that tracks S&P500 and saw it has lower expense ratio and slightly better returns than SPY in the self-directed option, so at the end of the day I just kept the majority in my standard 401k plan.

Man they make this **** complicated though

Not defending the "loophole" in any way...
The government is "allowing" us to play tax games with our own money. People that can afford to add this particular "loophole" to their financial toolbox are now part of the so called evil rich. Nevermind we're actually financially savvy middle to upper middle class, but we're the governments gravy train. Can't make it to easy to derail that.

If employers made it too easy I wonder if it might affect some of their safe harbor regulations

TXTransplant said:

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Since it's tax season, I thought I'd post a friendly reminder that, if you make after tax mega backdoor Roth contributions through your 401k, you will get a 1099-R that you should report on your tax return.

Mine is with Fidelity, and they report the form in a different place than my consolidated 1099 (for my personal accounts). It requires a separate log-in to retrieve the 1099-R for my after tax 401k contributions.

I found them today, and it was (of course) after I filed my 2024 return. I had to file an amended return for 2023 (easy to do through TurboTax and didn't cost anything), and I'm going to have to file a amended return for 2024 in a couple of weeks.

If you make this contribution and haven't filed, yet, make sure you go find the 1099-R. It won't change anything with respect to your refund or what you owe, but you are supposed to report it.

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You seem pretty well versed on the mega backdoor Roth. Question, if I already do a Backdoor Roth IRA with Vanguard every year, am I also eligible for the Megaback Door Roth with my company's 401k? Or is it one or the other per tax year?

I know my company's 401k allows for after tax contributions, what I need to find out is if they do in plan conversions.

Quick Google search says you can do both, but I would check with a financial advisor or accountant to be sure.

I started doing the mega backdoor because I could no longer do the backdoor Roth. I rolled an old 403b over to an IRA, and once you do that, you can't do the backdoor conversion through an IRA without being taxed on the contribution (you will eventually get the extra tax back, but it's not until you start taking distributions, and it's prorated). That was a $1200 mistake for me.

Now that I do mega backdoor, I wish I'd been doing it instead of the backdoor.

1) it's easier (I'm not the one moving the money around)
2) you can put more in the mega backdoor ($7k a year cap really is pitiful in comparison)
3) the tax reporting is easier

I guess the disadvantages are 1) I have less control over how the money is invested (but I'm using target funds and am not doing anything super aggressive with any of my investments) and 2) it might be a little harder to access the principal from a Roth 401k if I ever needed to (but I don't plan on that).

Do you have to do the same investment choices as in the 401k? There was only one decent fund in mine, luckily a SP 500 index.

If I could self direct into my preferred investments that'd be too sweet. I do backdoor Roths for me and my wife but that's only 15k between us. I could stash more than double…

Thank you for posting this.

FinalCylon said:

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Do you have to do the same investment choices as in the 401k? There was only one decent fund in mine, luckily a SP 500 index.

If I could self direct into my preferred investments that'd be too sweet. I do backdoor Roths for me and my wife but that's only 15k between us. I could stash more than double…

Thank you for posting this.

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My mega backdoor Roth contributions are invested the same as my 401k. I don't think I have the ability to change that (and I really don't want to - the 401k is fine for me). Maybe I could get into the weeds if I started self-directing my 401k, but I don't really want to do that. But that option is plan specific. Some do allow it.

Yeah - no one is getting "retirement rich" from a regular Roth (backdoor or not). It's just a "nice to have"

The mega backdoor Roth is the way to go. And once you hit 50, there are catch up contributions, so you can sack away even more.

If I can't do the mega Roth I might change gears and look into a Defined Benefit Plan for me as an individual. I've got almost as much 1099 income as W-2. Talking to a guy next week.

I really prefer to direct my own investment choices. Which is really just me picking VTI or VOO with a few other ETF's and closed end funds.