HRblock flagging mega backdoor Roth form (Vanguard Roth IRA)

[yosemite_mountain]

I made non-Roth after-tax contributions to my company 401k plan and then had the plan roll over the money (with earnings) to a Roth IRA at Vanguard.
The 401k plan issued me a single 1099-R as shown below, and this is how I entered it into Hr block online.

Single 1099-R issued:
Box 1 (gross distro.): $35,615.96
Box 2a (taxable amount): $96.29
Box 5 (employee contributions): $35,519.67
Box 7 (code): G - direct rollover

-I checked the box “I rolled this amount over to an IRA account”

-“Did you roll this distribution into a Roth IRA account?" checked YES

However, Hr block online gives me this error :"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.” Does anyone know how to fix this error?

I was issued a single 1099-R. However, to fix tax software flag, I want to try entering two separate 1099-Rs into the tax software, one for the after tax rollover ( $35,519.67, non-taxable) and one for the taxable ($96.29, taxable). Is this an ok way to do this? What do I put in box 7 for the taxable 1099-R #2 entry?

1099-R #1
Box 1 (gross distro.): $35,519.67
Box 2a (taxable amount): $0
Box 5 (employee contributions): $35,519.67
Box 7 (code): G - direct rollover of a distribution to a qualified plan

1099-R #2
Box 1 (gross distro.): $96.29
Box 2a (taxable amount): $96.29
Box 5 (employee contributions): $0
Box 7 (code): ?

[Duckie]

I was issued a single 1099-R. However, to fix tax software flag, I want to try entering two separate 1099-Rs into the tax software, one for the after tax rollover ( $35,519.67, non-taxable) and one for the taxable ($96.29, taxable). Is this an ok way to do this? What do I put in box 7 for the taxable 1099-R #2 entry?

1099-R #1
Box 1 (gross distro.): $35,519.67
Box 2a (taxable amount): $0
Box 5 (employee contributions): $35,519.67
Box 7 (code): G - direct rollover of a distribution to a qualified plan

1099-R #2
Box 1 (gross distro.): $96.29
Box 2a (taxable amount): $96.29
Box 5 (employee contributions): $0
Box 7 (code): ?

I'm not sure that is going to work, but if this were a conversion from a non-deductible TIRA to a Roth IRA, box 7 would have code 2—Early distribution, exception applies (under age 59 1/2).

[yosemite_mountain]

I'm not sure that is going to work, but if this were a conversion from a non-deductible TIRA to a Roth IRA, box 7 would have code 2—Early distribution, exception applies (under age 59 1/2).

I see. No, this is a direct rollover from an employee sponsored plan to a Vanguard Roth IRA.

[toddthebod]

I'm not sure that is going to work, but if this were a conversion from a non-deductible TIRA to a Roth IRA, box 7 would have code 2—Early distribution, exception applies (under age 59 1/2).

I see. No, this is a direct rollover from an employee sponsored plan to a Vanguard Roth IRA.

I suspect this is not going to helpful, but it looks like it should just work:
https://thefinancebuff.com/mega-backdoo ... tware.html

[yosemite_mountain]

I suspect this is not going to helpful, but it looks like it should just work:
https://thefinancebuff.com/mega-backdoo ... tware.html

I followed finacebuff.com instructions step by step and still get the error unfortunately.

[an_asker]

I contributed to the After-Tax portion of my company’s 401k. Then I called my company plan advisor and rolled over the after tax to a Roth IRA at Vanguard. I was issued a single 1099-R as shown below, and this is how I entered it into Hr block online.

Single 1099-R issued:
Box 1 (gross distro.): $35,615.96
Box 2a (taxable amount): $96.29
Box 5 (employee contributions): $35,519.67
Box 7 (code): G - direct rollover

-I checked the box “I rolled this amount over to an IRA account”

-“Did you roll this distribution into a Roth IRA account?" checked YES

However, Hr block online gives me this error :"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.” Does anyone know how to fix this error?

I was issued a single 1099-R. However, to fix tax software flag, I want to try entering two separate 1099-Rs into the tax software, one for the after tax rollover ( $35,519.67, non-taxable) and one for the taxable ($96.29, taxable). Is this an ok way to do this? What do I put in box 7 for the taxable 1099-R #2 entry?

1099-R #1
Box 1 (gross distro.): $35,519.67
Box 2a (taxable amount): $0
Box 5 (employee contributions): $35,519.67never
Box 7 (code): G - direct rollover of a distribution to a qualified plan

1099-R #2
Box 1 (gross distro.): $96.29
Box 2a (taxable amount): $96.29
Box 5 (employee contributions): $0
Box 7 (code): ?

I've never had the after-tax 401k option so cannot really answer the question, but my understanding was that this is a two step process. Step 1: convert the after-tax 401k to the Roth 401k, and Step 2: converting the Roth 401k to Roth IRA.

Have I misunderstood how the MBDR works?

[yosemite_mountain]

I've never had the after-tax 401k option so cannot really answer the question, but my understanding was that this is a two step process. Step 1: convert the after-tax 401k to the Roth 401k, and Step 2: converting the Roth 401k to Roth IRA.

Have I misunderstood how the MBDR works?

I made non-Roth after-tax contributions to my company 401k plan and then had the plan roll over the money (with earnings) to a Roth IRA at Vanguard.

[toddthebod]

I suspect this is not going to helpful, but it looks like it should just work:
https://thefinancebuff.com/mega-backdoo ... tware.html

I followed finacebuff.com instructions step by step and still get the error unfortunately.

I suspect this is also not going to be helpful, but consider calling them and requesting to switch versions from the online to the offline:
https://www.hrblock.com/tax-center/supp ... y-account/

[yosemite_mountain]

I suspect this is also not going to be helpful, but consider calling them and requesting to switch versions from the online to the offline:
https://www.hrblock.com/tax-center/supp ... y-account/

Do I have to re-enter all my information when switching from the HR block online version to the desktop version?

[toddthebod]

I suspect this is also not going to be helpful, but consider calling them and requesting to switch versions from the online to the offline:
https://www.hrblock.com/tax-center/supp ... y-account/

Do I have to re-enter all my information when switching from the HR block online version to the desktop version?

Probably.

[anon_investor]

I've never had the after-tax 401k option so cannot really answer the question, but my understanding was that this is a two step process. Step 1: convert the after-tax 401k to the Roth 401k, and Step 2: converting the Roth 401k to Roth IRA.

Have I misunderstood how the MBDR works?

I made non-Roth after-tax contributions to my company 401k plan and then had the plan roll over the money (with earnings) to a Roth IRA at Vanguard.

I think the software is wrong. I believe you can have a number in box 2a even with a direct transfer. It is likely earnings on the after-tax funds (e.g. interest), which are pre-tax and thus taxable. My MBD Roth 1099-R had a small amount of taxable earnings.

[stvman2]

I did a Roth conversion this year and was also a bit confused by the tax software. After a bit of research I found that I was confusing Conversion with Rollover! In the H&R Block software it asks "Did you, or will you, roll over this distribution?" Note that this page says in small print "A rollover occurs when...except a Roth IRA." I select NO. In my previous confusion I mistakenly chose yes. The very next question is now "Did you convert your distribution?" I select YES and I am good.

[yosemite_mountain]

I think the software is wrong. I believe you can have a number in box 2a even with a direct transfer. It is likely earnings on the after-tax funds (e.g. interest), which are pre-tax and thus taxable. My MBD Roth 1099-R had a small amount of taxable earnings.

Yep, the software is wrong...It won't let me e-file without fixing the "error". I do no want to paper file though

[yosemite_mountain]

I did a Roth conversion this year and was also a bit confused by the tax software. After a bit of research I found that I was confusing Conversion with Rollover! In the H&R Block software it asks "Did you, or will you, roll over this distribution?" Note that this page says in small print "A rollover occurs when...except a Roth IRA." I select NO. In my previous confusion I mistakenly chose yes. The very next question is now "Did you convert your distribution?" I select YES and I am good.

I did not do a conversion though; I did a rollover from a after tax 401k to a Roth IRA

[diy60]

I did a Roth conversion this year and was also a bit confused by the tax software. After a bit of research I found that I was confusing Conversion with Rollover! In the H&R Block software it asks "Did you, or will you, roll over this distribution?" Note that this page says in small print "A rollover occurs when...except a Roth IRA." I select NO. In my previous confusion I mistakenly chose yes. The very next question is now "Did you convert your distribution?" I select YES and I am good.

I did not do a conversion though; I did a rollover from a after tax 401k to a Roth IRA

You converted $96.29. Over the last 10 years I have done all sorts of rollovers from my employer's 401k. Sometimes it came down to how I answered the questions, sometimes I needed to split out the 1099 into separate pieces, sometimes it seemed to handle it properly from the start. I put your numbers into a blank return for the H&R desktop version and it seemed to handle the numbers just fine. Anyway, good. luck.

[yosemite_mountain]

You converted $96.29. Over the last 10 years I have done all sorts of rollovers from my employer's 401k. Sometimes it came down to how I answered the questions, sometimes I needed to split out the 1099 into separate pieces, sometimes it seemed to handle it properly from the start. I put your numbers into a blank return for the H&R desktop version and it seemed to handle the numbers just fine. Anyway, good. luck.

Thanks for the feedback. I am using HR block online; it seems the online version software is wrong.

I was issued a single 1099-R. Should I try entering two separate 1099-Rs into the tax software, one for the after tax rollover ( $35,519.67, non-taxable) and one for the taxable ($96.29, taxable)? What would be the box 7 (code) for a conversion?

1099-R #1
Box 1 (gross distro.): $35,519.67
Box 2a (taxable amount): $0
Box 5 (employee contributions): $35,519.67
Box 7 (code): G - direct rollover of a distribution to a qualified plan

1099-R #2
Box 1 (gross distro.): $96.29
Box 2a (taxable amount): $96.29
Box 5 (employee contributions): $0
Box 7 (code): ?

[diy60]

All of my single 1099 have been code G, but I am over 59.5, retired, and I receive all distributions (rollovers) as an FBO check. When I had to split them into different 1099 then I always used the original code, which was code G in my case. Good luck.

[anon_investor]

I think the software is wrong. I believe you can have a number in box 2a even with a direct transfer. It is likely earnings on the after-tax funds (e.g. interest), which are pre-tax and thus taxable. My MBD Roth 1099-R had a small amount of taxable earnings.

Yep, the software is wrong...It won't let me e-file without fixing the "error". I do no want to paper file though

I took a look at my 401k 1099-R for this year, and Turbo Tax did not have an issue with it and there definitely is a dollar amount in box 2a, and box 7 is "G". I look at past years as well, same thing.

Is there a way for you to report the bug to HR Block?

[retiredjg]

I did a Roth conversion this year and was also a bit confused by the tax software. After a bit of research I found that I was confusing Conversion with Rollover! In the H&R Block software it asks "Did you, or will you, roll over this distribution?" Note that this page says in small print "A rollover occurs when...except a Roth IRA." I select NO. In my previous confusion I mistakenly chose yes. The very next question is now "Did you convert your distribution?" I select YES and I am good.

I did not do a conversion though; I did a rollover from a after tax 401k to a Roth IRA

The money was not in a Roth account and now it is. Yes, you did do a Roth conversion, part of which was taxable.

[muffins14]

I agree. I think you did a conversion from After-tax 401k dollars to Roth 401k dollars. Then you did a rollover from your 401k to IRA.

That’s why for the mega Roth, people say you need to make sure your plan can do “in-plan conversions”

[Duckie]

I'm not sure that is going to work, but if this were a conversion from a non-deductible TIRA to a Roth IRA, box 7 would have code 2—Early distribution, exception applies (under age 59 1/2).

I see. No, this is a direct rollover from an employee sponsored plan to a Vanguard Roth IRA.

I know. But since your HRBlock software is having a fit and code G alone does not work and you are thinking of splitting the 1099-R into two parts anyway, the $96.29 is the taxable amount of the rollover/conversion and that should be coded 2 in this case. Code 2 does not mean non-taxable, it just means no penalty for early withdrawal.

Try splitting the 1099-R and using code 2 for the $96.29 and see what your software does. I just tried it in TurboTax and entered:

• 1099-R #1
  Box 1 -- 35,519.67
  Box 2a -- 0.00
  Box 2b -- nothing checked
  Box 5 -- 35,519.67
  Box 7 -- code G with IRA box NOT checked
  
  1099-R #2
  Box 1 -- 96.29
  Box 2a -- 96.29
  Box 2b -- nothing checked
  Box 5 -- nothing because these were earnings not contributions
  Box 7 -- code 2 with IRA box NOT checked

As a result, Form 1040 line 5a showed $35,616 as a rollover and line 5b showed $96 as the taxable amount. There was no Form 8606 triggered for the conversion because this went directly from the 401k to the Roth IRA without detouring through a TIRA.

[suemarkp]

I agree. I think you did a conversion from After-tax 401k dollars to Roth 401k dollars. Then you did a rollover from your 401k to IRA.

That’s why for the mega Roth, people say you need to make sure your plan can do “in-plan conversions”

I don't think that is necessarily correct. I did an after tax conversion last year directly from my 401K to an outside Roth IRA. It didn't do an intermediate Roth 401K conversion. Turbo Tax had no issue with it, and I called it a conversion. I had much more taxable since that after tax money has been growing since the late 1990's. Box 7 was code G.

[retiredjg]

If I'm following this correctly, the problem is not the code G. I think the problem is that the poster is calling this a rollover but it was actually a conversion.

This would be consistent with what suemarkp says.

[Duckie]

If I'm following this correctly, the problem is not the code G. I think the problem is that the poster is calling this a rollover but it was actually a conversion.

I think the problem is that HRBlock's online software has a glitch. It says (per OP above):

• "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."

Since a direct transfer does not necessarily mean non-taxable and since box 2a does not have to be zero using code G, the software is wrong.

[retiredjg]

If I'm following this correctly, the problem is not the code G. I think the problem is that the poster is calling this a rollover but it was actually a conversion.

I think the problem is that HRBlock's online software has a glitch. It says (per OP above):

• "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."

Since a direct transfer does not necessarily mean non-taxable and since box 2a does not have to be zero using code G, the software is wrong.

Agree. But I think what the poster is saying is that is the response that occurs after the poster has told the software that s/he has done a rollover.

That response might not occur if poster choses Roth conversion rather than rollover.

This is just a WAG. I am not familiar with that software. Just guessing.

[Holocene]

-I checked the box “I rolled this amount over to an IRA account”

Are you sure the above checkbox was about rolling TO an IRA account rather than FROM an IRA account? There is box on the 1099-R between 7 and 8 that says "IRA/SEP/SIMPLE" and that should not be checked on your 1099-R since it was initiated from a 401k. I think the tax software may have been trying to ask about whether or not this box was checked on your 1099-R. So I would try not checking this box. Hopefully it will still ask you if you rolled over to a Roth IRA and let you proceed without errors. If it does, I would double check the 1040 to make sure it is entered correctly with your non-taxable portion on line 5a and taxable portion on 5b.

I use TurboTax and am able to enter my Mega Backdoor Roth 1099-R without issue. But it explicitly asks, "On the Form 1099-R, is the IRA/SEP/SIMPLE box between box 7 and 8 checked?" If I answer Yes to this and say Yes it was rolled over to a Roth IRA, then it gives me an error basically saying this isn't allowed. So that's what makes me think this might be your issue. But it doesn't have any problem with a taxable amount in Box 2a of the 1099-R and distribution code G in Box 7 as long as I don't check that box.

[yosemite_mountain]

***Resolved***

I was issued a single 1099-R. However, I resolved the HR online software flag by entering two separate 1099-Rs into the tax software, one for the after tax rollover ( $35,519.67, non-taxable) using code G and one for the taxable ($96.29, taxable) using code 2.

1099-R #1
Box 1 (gross distro.): $35,519.67
Box 2a (taxable amount): $0
Box 5 (employee contributions): $35,519.67
Box 7 (code): G - direct rollover of a distribution to a qualified plan
Box 16 (state distribution): 0

Checked “I rolled this amount over to an IRA account”.

“Did you roll this distribution into a Roth IRA account?" checked YES.

1099-R #2
Box 1 (gross distro.): $96.29
Box 2a (taxable amount): $96.29
Box 5 (employee contributions): $0
Box 7 (code): 2
Box 16 (state distribution): $96.29

Was this a regular distribution or an indirect rollover: checked “Indirect rollover- rolled the distribution into another qualified plan within 60 days”

Rollover amount: $96.29

“Did you roll this distribution into an IRA account”: checked YES

“Did you roll this distribution into a Roth account?" checked YES

[yosemite_mountain]

But since your HRBlock software is having a fit and code G alone does not work and you are thinking of splitting the 1099-R into two parts anyway, the $96.29 is the taxable amount of the rollover/conversion and that should be coded 2 in this case. Code 2 does not mean non-taxable, it just means no penalty for early withdrawal.

I appreciate the help Duckie! Splitting into two 1099R's worked!

Any recommendations for tax software?

I will not be using HR block again. HR block online does not show the tax forms (1040) etc until after you pay, so its hard to know if you are filling out the forms correctly. HR block desktop version's user interface is hard to use.

[Duckie]

I appreciate the help Duckie! Splitting into two 1099R's worked!

I'm glad things worked out. Have you checked to see what appears on Form 1040? Or if that won't work does the online version show your taxes owed increasing or decreasing? I just want to make sure that $35K conversion is not being taxed on your return. Once you pay do you have the opportunity to change things on the return?

Any recommendations for tax software?

I use TurboTax Deluxe download version and am pleased with it. I'm sure it has some glitches but they haven't affected me and I'm used to the software. Since I have the download version I can use "Forms" mode to see what ends up on each line of the forms which is very valuable when I'm playing "what if". It's not cheap but I'm willing to pay for the convenience.

[yosemite_mountain]

I use TurboTax Deluxe download version and am pleased with it. I'm sure it has some glitches but they haven't affected me and I'm used to the software. Since I have the download version I can use "Forms" mode to see what ends up on each line of the forms which is very valuable when I'm playing "what if". It's not cheap but I'm willing to pay for the convenience.

Cool....Note to self to try TurboTax download version next year