1099-R for Mega Backdoor Roths

For owner-only clients of One-Participant 401(k) plans - also known as Solo 401(k), Solo-k or Uni-k plans, - don’t forget the 1099-R filing requirements that go along with running such a retirement plan for yourself (or for yourself as the owner, plus your spouse only).

Specifically in this post, I’ll be talking about issuing a 1099-R to yourself (and providing a timely copy to the IRS and your state taxing authority…) for any Voluntary After-Tax contributions that you then converted in-plan to your Roth 401(k) account, or if you made any Voluntary After-Tax contributions that you then directly rolled over to your Roth IRA via an in-service distribution.

Both of these methods are generally referred to as a 'Mega Backdoor Roth’ since they allow “mega” amounts to end up in Roth-style accounts (i.e. either Roth 401(k) or Roth IRA)), compared to the much smaller amount that can be moved each year via the more common ‘Backdoor Roth’ strategy.

If you did an in-plan conversion to a Roth 401(k), you’ll need to file Form 1099-R (listing your Solo 401(k) trust name, Solo 401(k) trust EIN and Solo 401(k) trust mailing address) as both the PAYER and the RECIPIENT (which makes sense because the funds are still in the same plan, just in a different category…). The gross distribution is the amount you converted in-plan to your Roth 401(k). Of course, since you are converting after-tax contributions, the taxable amount in box 2a will be $0 (or -0- according to IRS instructions).

In Box 7, enter Distribution code 7 if you are 59 ½ or older. Or, if you are under age 59 ½, enter Distribution code 2 for an Early Distribution, exception applies. Naturally, there is no 10% early withdrawal penalty since you’re converting in-plan to your Roth 401(k).

Alternatively, if you are using an in-service distribution to move your Voluntary After-Tax contributions out of your Solo 401(k) plan and into your Roth IRA, the PAYER on Form 1099-R will be listed as your Solo 401(k) trust. You’ll include the Solo 401(k) trust EIN, trust address etc. on the form. For the RECIPIENT, you’ll enter your name, your address and your Social Security number since these funds have now moved to your Roth IRA.

Again, the taxable amount in box 2a is -0-, since these funds are moving from an after-tax account to an after-tax account. But Box 7 should list Distribution code H for a Direct Rollover of a designated Roth account distribution to a designated Roth IRA.

As the administrator of your plan, you should provide a copy of the 1099-R form to yourself by February 1st, and to the IRS by March 1st, if you file by mail (but please don’t…). If you e-file the 1099-R you are required to furnish this to the IRS by March 31st. There are a number of reliable online services that will e-file your 1099-R for you for a nominal fee, so this really is the way to go!

On a related note, don’t forget to file Form 5500-EZ by the deadline of July 31st if the assets in your plan hit $250,000 or more on December 31st of any year, and definitely don’t forget to file a final Form 5500-EZ or Form 5500-SF no matter what amount of assets your plan has if you ever decide to terminate the plan.

Disclaimer: Clients should note that The Wealth Collective will not provide accounting or legal advice, nor prepare any accounting or legal documents. Clients are urged to work closely with their attorney and/or accountant in implementing our recommendations. However, at the client’s request we may recommend the services of a third-party attorney, accountant, tax professional or other specialist. The Wealth Collective is not compensated for these referrals.