TaxCut Mega Backdoor Roth

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m2go
Posts: 92
Joined: Fri Jun 17, 2011 7:05 pm

TaxCut Mega Backdoor Roth

Post by m2go » Wed Oct 10, 2018 10:07 pm

Only recently, the IRS came knocking on my door because of a Mega Backdoor Roth. (See here => viewtopic.php?t=258768 ) After a got the response together thanks to everybody's help, we're on to wrapping up tax year 2017. And the same looms.

Now, for Traditional to Roth Conversions, Tax Cut indicates "ROLLOVER" next to box 15a. For line 16, there's similarly a box there in the program, but TaxCut does not indicate ROLLOVER in it, and overriding voids e-file. I answered the questions in the interfiew, went back and reviewed, but all to no avail. Am I missing something here, or is TaxCut just not set up to indicate roll-overs from 401k to Roth gracefully>

Thanks for any advice and sharing your experience relating to recent Tax Cut, e.g., 2016 or 2017!

megabad
Posts: 828
Joined: Fri Jun 01, 2018 4:00 pm

Re: TaxCut Mega Backdoor Roth

Post by megabad » Thu Oct 11, 2018 1:06 pm

m2go wrote:
Wed Oct 10, 2018 10:07 pm
Only recently, the IRS came knocking on my door because of a Mega Backdoor Roth. (See here => viewtopic.php?t=258768 ) After a got the response together thanks to everybody's help, we're on to wrapping up tax year 2017. And the same looms.

Now, for Traditional to Roth Conversions, Tax Cut indicates "ROLLOVER" next to box 15a. For line 16, there's similarly a box there in the program, but TaxCut does not indicate ROLLOVER in it, and overriding voids e-file. I answered the questions in the interfiew, went back and reviewed, but all to no avail. Am I missing something here, or is TaxCut just not set up to indicate roll-overs from 401k to Roth gracefully>

Thanks for any advice and sharing your experience relating to recent Tax Cut, e.g., 2016 or 2017!
If you are using HR Block software than there are several known bugs, but are you sure you filled out the software correctly? Why is box 15a being used for anything? Did you have any IRA distributions/rollovers? In any case, there was a bug that prevented HR Block software from handling any 401k rollover with any nonzero value in 1099-r box 2a (but this should not affect box 15a/b). This should not be an issue for 401k rollovers with 0 in 2a. Not sure if they ever fixed this, but if you can't get it working seems to be an easy solution to use other software or the forms themselves. This is just two lines on 1040 (16a and 16b).

m2go
Posts: 92
Joined: Fri Jun 17, 2011 7:05 pm

Re: TaxCut Mega Backdoor Roth

Post by m2go » Thu Oct 11, 2018 2:26 pm

megabad wrote:
Thu Oct 11, 2018 1:06 pm
m2go wrote:
Wed Oct 10, 2018 10:07 pm
Only recently, the IRS came knocking on my door because of a Mega Backdoor Roth. (See here => viewtopic.php?t=258768 ) After a got the response together thanks to everybody's help, we're on to wrapping up tax year 2017. And the same looms.

Now, for Traditional to Roth Conversions, Tax Cut indicates "ROLLOVER" next to box 15a. For line 16, there's similarly a box there in the program, but TaxCut does not indicate ROLLOVER in it, and overriding voids e-file. I answered the questions in the interfiew, went back and reviewed, but all to no avail. Am I missing something here, or is TaxCut just not set up to indicate roll-overs from 401k to Roth gracefully>

Thanks for any advice and sharing your experience relating to recent Tax Cut, e.g., 2016 or 2017!
If you are using HR Block software than there are several known bugs, but are you sure you filled out the software correctly? Why is box 15a being used for anything? Did you have any IRA distributions/rollovers? In any case, there was a bug that prevented HR Block software from handling any 401k rollover with any nonzero value in 1099-r box 2a (but this should not affect box 15a/b). This should not be an issue for 401k rollovers with 0 in 2a. Not sure if they ever fixed this, but if you can't get it working seems to be an easy solution to use other software or the forms themselves. This is just two lines on 1040 (16a and 16b).
Thanks for asking these clarifying questions.

1 - To answer the question about why there are values in line 15: I did a normal backdoor ROth as well, so there's an IRA ROth conversion. I made reference to line.
2 - Why am I making reference to line 15 in discussing 401k Roth rollovers: parallel reasoning. I'd expect the boxes to be filled out the same way, there's even an empty box in line 16 similar to line 15 that would allow to indicate that a 401k is a Roth rollover.
3 - Thanks for pointing out there's a bug in HR Block for handling 401k rollovers that have a value in 2a. That's exactly what I have, and got me a friendly letter from the IRS for my 2016 return just a few weeks ago (topic linked in my original message as background, as I was wanting to avoid the same problem). I think the primary problem with TaxCut is that it does not indicate that it's a rollover? Or is there a bigger issue?

It's a few days before the time runs out to file 2017 taxes even with extension, so not sure it's practical for me to switch tax programs. (Hard to get right now, not enough time to transfer and audit drafts, etc) -- so I'm curious how "wrong" the HR Block bug makes this.

I could override the box in line 16 and force the word "ROLLOVER" into the free form box to handle the 401k to Roth rollover with non-0 box 2a in 1099-R. When I attempt that, I get a popup that this invalidates my ability to e-file. Does that raise any red flags. Corollary: I also need to file in NY which requires to e-file if filled out with a tax program, how are these two constraints reconciled?

megabad
Posts: 828
Joined: Fri Jun 01, 2018 4:00 pm

Re: TaxCut Mega Backdoor Roth

Post by megabad » Thu Oct 11, 2018 4:10 pm

m2go wrote:
Thu Oct 11, 2018 2:26 pm
Thanks for asking these clarifying questions.

1 - To answer the question about why there are values in line 15: I did a normal backdoor ROth as well, so there's an IRA ROth conversion. I made reference to line.
Ok makes sense.
2 - Why am I making reference to line 15 in discussing 401k Roth rollovers: parallel reasoning. I'd expect the boxes to be filled out the same way, there's even an empty box in line 16 similar to line 15 that would allow to indicate that a 401k is a Roth rollover.
Also makes sense and I agree with you. But I assume that if you tell software that you have a 401k rollover and upload 1099r that software would show Rollover for 16a/b as well.
3 - Thanks for pointing out there's a bug in HR Block for handling 401k rollovers that have a value in 2a. That's exactly what I have, and got me a friendly letter from the IRS for my 2016 return just a few weeks ago (topic linked in my original message as background, as I was wanting to avoid the same problem). I think the primary problem with TaxCut is that it does not indicate that it's a rollover? Or is there a bigger issue?
Yes, it completely broke HR Block software. It is not just the word Rollover, it will overestimate your taxes. Link hereviewtopic.php?t=240189, I am not sure if this necessarily is your issue though and I am not sure if fixed.

It's a few days before the time runs out to file 2017 taxes even with extension, so not sure it's practical for me to switch tax programs. (Hard to get right now, not enough time to transfer and audit drafts, etc) -- so I'm curious how "wrong" the HR Block bug makes this.
See above, it could potentially overestimate your taxes. If Megabackdoor was significant it could make a big error.

I could override the box in line 16 and force the word "ROLLOVER" into the free form box to handle the 401k to Roth rollover with non-0 box 2a in 1099-R. When I attempt that, I get a popup that this invalidates my ability to e-file. Does that raise any red flags. Corollary: I also need to file in NY which requires to e-file if filled out with a tax program, how are these two constraints reconciled?
From state website:
You're required to electronically file your return if you meet all three of the following conditions:

you use software to prepare your own personal income tax return; and
your software supports the electronic filing of your return; and
you have broadband Internet access.

Seems rather easy to avoid the efile requirement. In fact, I would argue that your software does not "support electronic filing of your return."

m2go
Posts: 92
Joined: Fri Jun 17, 2011 7:05 pm

Re: TaxCut Mega Backdoor Roth

Post by m2go » Thu Oct 11, 2018 5:28 pm

megabad wrote:
Thu Oct 11, 2018 4:10 pm
[color]megabad's responses in red[/color]
m2go wrote:
Thu Oct 11, 2018 2:26 pm

2 - Why am I making reference to line 15 in discussing 401k Roth rollovers: parallel reasoning. I'd expect the boxes to be filled out the same way, there's even an empty box in line 16 similar to line 15 that would allow to indicate that a 401k is a Roth rollover.
Also makes sense and I agree with you. But I assume that if you tell software that you have a 401k rollover and upload 1099r that software would show Rollover for 16a/b as well.
3 - Thanks for pointing out there's a bug in HR Block for handling 401k rollovers that have a value in 2a. That's exactly what I have, and got me a friendly letter from the IRS for my 2016 return just a few weeks ago (topic linked in my original message as background, as I was wanting to avoid the same problem). I think the primary problem with TaxCut is that it does not indicate that it's a rollover? Or is there a bigger issue?
Yes, it completely broke HR Block software. It is not just the word Rollover, it will overestimate your taxes. Link hereviewtopic.php?t=240189, I am not sure if this necessarily is your issue though and I am not sure if fixed.

It's a few days before the time runs out to file 2017 taxes even with extension, so not sure it's practical for me to switch tax programs. (Hard to get right now, not enough time to transfer and audit drafts, etc) -- so I'm curious how "wrong" the HR Block bug makes this.
See above, it could potentially overestimate your taxes. If Megabackdoor was significant it could make a big error.

I could override the box in line 16 and force the word "ROLLOVER" into the free form box to handle the 401k to Roth rollover with non-0 box 2a in 1099-R. When I attempt that, I get a popup that this invalidates my ability to e-file. Does that raise any red flags. Corollary: I also need to file in NY which requires to e-file if filled out with a tax program, how are these two constraints reconciled?
To answer the question on item 2, TaxCut does not make ROLLOVER appear. That's what caused a friendly letter from IRS for 2016 return.

To answer comment on 3, yikes! I'll need to look at the error, but this is disturbing. the IRS letter on the TaxCut 2016 generated return just demanded a 10% surtax for a premature distribution, and a penalty for not paying and made no reference to having overpaid :-) Overall, TaxCut put the value in 2a into 16b, as being taxable as a result of a vanilla non-Roth 401(k) rollover to a Roth IRA. That seemed to be right based on my understanding of the tax law. But, there are myriad other ways to mess things up of course, AMT computation and so forth.

Maybe it's time to try the 2016 return with TurboTax to see what the return looks like there. Does fellow BogleHeads have suggestions where to get tax programs for years back (and cheaply for regression testing ;-).

m2go
Posts: 92
Joined: Fri Jun 17, 2011 7:05 pm

Re: TaxCut Mega Backdoor Roth

Post by m2go » Fri Oct 12, 2018 3:34 pm

I did some testing on the return with taxable amounts due -- it seems that the tax is gneerally correctly computed. I removed the value in boxes 2a, and the tax changed approximately by my marginal tax rate of the amount in 2a. (Actually, removing just 2a did nothing. I also had to remove the value in box 5, Employee contribs). SO that seems to be fine, but getting the actual word "ROLLOVER" to appear in the text box for Line 16 (that's printed on the dotted line of the printed form) doesn't work for me.

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