TurboTax is not registering my after-tax contribution to my I-401K-Regular.
My I-401K was empty.
I put $10,919 in as an "employer", after-tax, contribution. I have an LLC with pass through taxation to me individually so I paid income tax on this amount prior to its contribution.
Now when I try to enter my 1099-R which Vanguard provided, I cannot get TurboTax to register the after-tax contribution.
On my 1099-G
1. My Box 1 Gross Distribution is $10919
2. My Box 2a Taxable Amount is $10919 ( Vanguard says they have to list it this way because they don't keep track of whether "Employer contributions" are post-tax or pre-tax. Very frustrating.)
3. Box 5 is empty (Again, Vanguard says they have to list it this way for the reason above).
4. Box 7 is G
When I enter it into TurboTax, TurboTax asks:
1. Was this money rolled over to a Roth IRA? I say "yes".
2. Did I make after-tax contributions to my 401K? I say "yes".
3. A screen comes up asking the list the amount of the after-tax contribution? I enter "$10,919".
But it still assesses me tax as though the rollover was of a pre-tax contribution.
It thus appears not to be registering that the after-tax contribution should register as non-taxable in the rollover to Roth.
How do I get it to register that this is after-tax funds and thus should not be taxed again?
Employers are not permitted to make after-tax contributions. Since this was an employer contribution, its was pre-tax.
The IRS deems it "profit-sharing" and because the tax on profits passes through directly to me, it's after-tax.
This strategy is called the "Mega Back Door Roth" because it is after-tax by the owner of a business without employees.
The employer takes a deduction for an employer contribution, making it pre-tax. (If the employer fails to take the deduction, that's simply a mistake on the employer's tax return. Such a mistake does not make it after-tax.) Employer contributions such as profit-sharing contributions are compensation to the employee on which the employee has not yet paid taxes.
As I said, employers are not permitted to make after-tax contributions. Employer contributions that are not deductible are subject to penalty.
The taxable amount on the Form 1099-R provided by Vanguard is correct.
Mega-backdoor Roths involve after-tax employee contributions from compensation paid to the employee, not employer contributions.
Again, this is a pass-through entity (i.e. all income is "passed through" to the owner as income on which s/he pays tax). There is no deduction at the entity (or employer) level. Full ordinary income tax is paid on it by the LLC owner.
This is a common strategy for owners of pass-through entities such as LLC, S-Corp, and Partnership owners.
Please do not comment when you are unfamiliar with the topic.
I'm quite familiar with the topic. I've added to my previous reply indicating that the mega-backdoor Roth involves after-tax employee contributions, not employer contributions. Employer contributions are deducted on the employer's tax return (in the case of a partner in a partnership, on the partner's individual tax return as a pass-through deduction).
Please do not comment when you are unfamiliar with the topic.
User @dmertz IS an expert in this area and has studied the actual tax laws and has much more knowledge about this than do most financial institutions or tax professionals.