Excess contribution 401k > Mega backdoor IRA Filing

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Topic Author
cjk164
Posts: 7
Joined: Sat Feb 13, 2021 2:41 pm

Excess contribution 401k > Mega backdoor IRA Filing

Post by cjk164 »

I am getting a bit confused regarding an excess contribution I made and how to enter it into TaxAct and was looking for a bit of help. I made a clerical error and contributed 57,297.90 to my 401k plan leaving me with an excess contribution of after-tax dollars of 297.90 for 2020.

Prior to catching this error, I did a direct rollover of all after-tax contributions (there was additional after-tax dollars in there from 2019) along with the gains to a Roth with another custodian. I caught this error a month or so back and requested and received a distribution from my Roth provider for the 297.90 along with the excess gains. In addition, my 401k provider has issued me a corrected 1099-R and a 2nd 1099-R for the 297.90 amount.

Corrected 1099-R
box 1 51943.13
box2a 134.38
box 5 52106.65
box 7 G

2nd 1099-R
box 1 297.90
box 5 297.90
box 7 E

Based on this information, I thought I would need to pay taxes on the 134.18 amount; however, when entering the first 1099-R TaxAct asks, "If you rolled all or part of this qualified retirement plan distribution to a Roth IRA or if this is an In-plan Rollover to a Designated Roth Account, enter the amount moved into the Roth or Designated Roth account.", and I enter 51943.13. It then asks for my basis for the 51,943 amount and after entering 52106.65 it leaves me with a taxable amount of 0.

After entering in the 2nd 1099-R, TaxAct asks, "Enter the portion of the $297.90 distribution, if any, that was rolled over to a traditional IRA or another qualified retirement plan.", and here I enter 0 for the rollover amount.

Am I incorrect in thinking that this 297.90 amount is no longer considered a rollover since it was distributed to me prior to the 2020 filing date?

Also, since the 297.90 was returned and my cost basis is now lowered does that taxable amount no longer become taxable?

Ultimately, I thought the end result for my 1040 would be box 5a 52,241 ROLLOVER 5b 134.38.

Any insight would be appreciated.
Alan S.
Posts: 10597
Joined: Mon May 16, 2011 6:07 pm
Location: Prescott, AZ

Re: Excess contribution 401k > Mega backdoor IRA Filing

Post by Alan S. »

cjk164 wrote: Mon May 03, 2021 4:24 pm I am getting a bit confused regarding an excess contribution I made and how to enter it into TaxAct and was looking for a bit of help. I made a clerical error and contributed 57,297.90 to my 401k plan leaving me with an excess contribution of after-tax dollars of 297.90 for 2020.

Prior to catching this error, I did a direct rollover of all after-tax contributions (there was additional after-tax dollars in there from 2019) along with the gains to a Roth with another custodian. I caught this error a month or so back and requested and received a distribution from my Roth provider for the 297.90 along with the excess gains. In addition, my 401k provider has issued me a corrected 1099-R and a 2nd 1099-R for the 297.90 amount.

Corrected 1099-R
box 1 51943.13
box2a 134.38
box 5 52106.65
box 7 G

2nd 1099-R
box 1 297.90
box 5 297.90
box 7 E

Based on this information, I thought I would need to pay taxes on the 134.18 amount; however, when entering the first 1099-R TaxAct asks, "If you rolled all or part of this qualified retirement plan distribution to a Roth IRA or if this is an In-plan Rollover to a Designated Roth Account, enter the amount moved into the Roth or Designated Roth account.", and I enter 51943.13. It then asks for my basis for the 51,943 amount and after entering 52106.65 it leaves me with a taxable amount of 0.

After entering in the 2nd 1099-R, TaxAct asks, "Enter the portion of the $297.90 distribution, if any, that was rolled over to a traditional IRA or another qualified retirement plan.", and here I enter 0 for the rollover amount.

Am I incorrect in thinking that this 297.90 amount is no longer considered a rollover since it was distributed to me prior to the 2020 filing date?

Also, since the 297.90 was returned and my cost basis is now lowered does that taxable amount no longer become taxable?

Ultimately, I thought the end result for my 1040 would be box 5a 52,241 ROLLOVER 5b 134.38.

Any insight would be appreciated.
First off, they messed up the split 1099R forms. It appears that Box 5 of the large 1099R was not reduced by 298 like Box 1 was, and it should have been. You could confirm that by checking the original 1099R coded G. If they had corrected the Box 5 amount to 51,809, then the 2a amount of 134 would be correct as that would match the Box 1 amount of 51,943. So you do have 134 of taxable income, and 2a is actually correct.

You should request another corrected large 1099R with Box 5 showing 51,808.75. The rest is correct, and the small 1099R is also correct.

If they argue about correcting the large 1099R, OR you do not wish to wait for that, you could file showing the correct Box 5 amount, and that would produce the 134 of taxable income. The IRS will probably not notice this.

As for the 298 1099R, what happens if you change your answer to indicate that you DID roll that amount to your Roth IRA? Does it tell you that you have an excess Roth IRA contribution to remove (which you already did)?
Topic Author
cjk164
Posts: 7
Joined: Sat Feb 13, 2021 2:41 pm

Re: Excess contribution 401k > Mega backdoor IRA Filing

Post by cjk164 »

Alan S. wrote: Mon May 03, 2021 10:57 pm
cjk164 wrote: Mon May 03, 2021 4:24 pm I am getting a bit confused regarding an excess contribution I made and how to enter it into TaxAct and was looking for a bit of help. I made a clerical error and contributed 57,297.90 to my 401k plan leaving me with an excess contribution of after-tax dollars of 297.90 for 2020.

Prior to catching this error, I did a direct rollover of all after-tax contributions (there was additional after-tax dollars in there from 2019) along with the gains to a Roth with another custodian. I caught this error a month or so back and requested and received a distribution from my Roth provider for the 297.90 along with the excess gains. In addition, my 401k provider has issued me a corrected 1099-R and a 2nd 1099-R for the 297.90 amount.

Corrected 1099-R
box 1 51943.13
box2a 134.38
box 5 52106.65
box 7 G

2nd 1099-R
box 1 297.90
box 5 297.90
box 7 E

Based on this information, I thought I would need to pay taxes on the 134.18 amount; however, when entering the first 1099-R TaxAct asks, "If you rolled all or part of this qualified retirement plan distribution to a Roth IRA or if this is an In-plan Rollover to a Designated Roth Account, enter the amount moved into the Roth or Designated Roth account.", and I enter 51943.13. It then asks for my basis for the 51,943 amount and after entering 52106.65 it leaves me with a taxable amount of 0.

After entering in the 2nd 1099-R, TaxAct asks, "Enter the portion of the $297.90 distribution, if any, that was rolled over to a traditional IRA or another qualified retirement plan.", and here I enter 0 for the rollover amount.

Am I incorrect in thinking that this 297.90 amount is no longer considered a rollover since it was distributed to me prior to the 2020 filing date?

Also, since the 297.90 was returned and my cost basis is now lowered does that taxable amount no longer become taxable?

Ultimately, I thought the end result for my 1040 would be box 5a 52,241 ROLLOVER 5b 134.38.

Any insight would be appreciated.
First off, they messed up the split 1099R forms. It appears that Box 5 of the large 1099R was not reduced by 298 like Box 1 was, and it should have been. You could confirm that by checking the original 1099R coded G. If they had corrected the Box 5 amount to 51,809, then the 2a amount of 134 would be correct as that would match the Box 1 amount of 51,943. So you do have 134 of taxable income, and 2a is actually correct.

You should request another corrected large 1099R with Box 5 showing 51,808.75. The rest is correct, and the small 1099R is also correct.

If they argue about correcting the large 1099R, OR you do not wish to wait for that, you could file showing the correct Box 5 amount, and that would produce the 134 of taxable income. The IRS will probably not notice this.

As for the 298 1099R, what happens if you change your answer to indicate that you DID roll that amount to your Roth IRA? Does it tell you that you have an excess Roth IRA contribution to remove (which you already did)?
That makes so much more sense!

I believe the TaxAct software is still bugged as it will not add ROLLOVER to the line when I enter the amount of 51,943 for the larger 1099-R as a Roth rollover amount. This bug was discussed as well on this post viewtopic.php?t=336731.

It is not until I enter the smaller amount of 298 in the section that asks, "Enter the portion of the $297.90 distribution, if any, that was rolled over to a traditional IRA or another qualified retirement plan. Also enter rollovers from one Roth IRA to another Roth IRA and direct rollovers from a designated Roth account to another designated Roth account or to a Roth IRA, but do not include amounts converted to a Roth IRA or amounts rolled over from a pension plan to a Roth IRA here." This does not seems correct based on what it is asking but if I leave that amount 0 then ROLLOVER no longer appears on the 1040.

One other question regarding the 1099-R that will be issued from the Roth custodian next year for the return of the excess contribution + gains. Will the gains and 10% penalty be for 2020 or will that just be filed for 2021? Also, is this what I should expect in the 1099-R boxes?

Box 1 388.19
Box 2a 90.29
Box 5 297.90
Box 7 J

Thanks, Alan! If it was not for researching all your old posts I would not be able to have this conversation to begin with.
Topic Author
cjk164
Posts: 7
Joined: Sat Feb 13, 2021 2:41 pm

Re: Excess contribution 401k > Mega backdoor IRA Filing

Post by cjk164 »

I think I got the last question regarding the excess contribution sorted as well but would love a sanity check if someone has some knowledge on this.

So for the excess amount of 388.19 that will come from the Roth account next year - I have entered a dummy 1099-R with box 1 388.19 box 2a 90.29 and box 7 coded as 8 & J. This filled out 1040 as box 4a 388 and box 4b 90. I now have schedule 2 with $9 on line 6 and 10 for my 10% penalty amount taken from line 4 of form 5329... form 5329 also has my excess contributions of 298 listed on line 16.
Alan S.
Posts: 10597
Joined: Mon May 16, 2011 6:07 pm
Location: Prescott, AZ

Re: Excess contribution 401k > Mega backdoor IRA Filing

Post by Alan S. »

cjk164 wrote: Tue May 04, 2021 4:51 pm I think I got the last question regarding the excess contribution sorted as well but would love a sanity check if someone has some knowledge on this.

So for the excess amount of 388.19 that will come from the Roth account next year - I have entered a dummy 1099-R with box 1 388.19 box 2a 90.29 and box 7 coded as 8 & J. This filled out 1040 as box 4a 388 and box 4b 90. I now have schedule 2 with $9 on line 6 and 10 for my 10% penalty amount taken from line 4 of form 5329... form 5329 also has my excess contributions of 298 listed on line 16.
Ok - except there is no reason for the 5329, particularly Part III, which is for excise taxes for uncorrected excess TIRA contributions. On the dummy 1099R did you check the IRA box?

For your prior post, the return of the Roth excess is taxable and subject to penalty for 2020, the year in which the excess contribution was made.
Topic Author
cjk164
Posts: 7
Joined: Sat Feb 13, 2021 2:41 pm

Re: Excess contribution 401k > Mega backdoor IRA Filing

Post by cjk164 »

Alan S. wrote: Tue May 04, 2021 7:42 pm
cjk164 wrote: Tue May 04, 2021 4:51 pm I think I got the last question regarding the excess contribution sorted as well but would love a sanity check if someone has some knowledge on this.

So for the excess amount of 388.19 that will come from the Roth account next year - I have entered a dummy 1099-R with box 1 388.19 box 2a 90.29 and box 7 coded as 8 & J. This filled out 1040 as box 4a 388 and box 4b 90. I now have schedule 2 with $9 on line 6 and 10 for my 10% penalty amount taken from line 4 of form 5329... form 5329 also has my excess contributions of 298 listed on line 16.
Ok - except there is no reason for the 5329, particularly Part III, which is for excise taxes for uncorrected excess TIRA contributions. On the dummy 1099R did you check the IRA box?
Thanks for the heads up. I have been my own worst enemy throughout this. 5329 Part I is not required though? My interpretation is it needs to be included to calculate the penalty for the excess earnings.
For your prior post, the return of the Roth excess is taxable and subject to penalty for 2020, the year in which the excess contribution was made.
Makes sense. I found another post of yours that confirmed this for me as well.

For prosperities sake, I am adding a few posts related to this topic that helped me along the way in hope they can assist others further down the line.

viewtopic.php?t=336948

viewtopic.php?t=249964

viewtopic.php?t=304026

Thanks again, Alan.
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