Rollover from nondeductible 401K to Roth

Here's the first thing to come up on my Google search:

https://www.empower.com/the-currency/work/after-tax-vs-roth-401k

Note, these are not "excess" contributions, just after-tax contributions.

If done right, these are NOT included in the box 12 code D amount (you can have the client pull a final paystub to see the details).

You'll also have a 1099-R showing:

Box 1 = Gross distribution
Box 2a = $0 (or maybe a small amount of earnings)
Box 5 = Box 1 - Box 2a (same as Box 1 if no earnings)
Box 7 = G
IRA = NOT checked

Most of my clients that have this have "auto-conversion" turned on so as soon as they make the contribution from their paycheck it is immediately converted to Roth before there are any earnings.  Sometimes the Code G will throw off the software.  If there's anything in Box 2a you want that to show up as taxable on the 1040.  If that's not working, post back and maybe a Lacertian can help out with the data entry.

Rick

You used the word Roth all by itself.

Megabackdoor is when a 401(k) (employer plan) accepts after-tax contributions. These are only a contribution once. Then it is converted to Roth 401(k), but since it is basis, there is no taxable event. That's an In Plan Rollover.

Or, they took nondeductible 401(k) money and moved it to Roth IRA? That is a distribution and a conversion. Again, when it is only the nondeducted funds, it is Basis and that would be a nontaxable rollover. Hopefully, there was no withholding.

"The nondeductible contributions still must show up as excess deferrals"

Must? Or, does? Because there might also be excess deferral. That step is the first thing, when it is being contributed to the 401(k). Deferral is how the contribution step happened. Did you examine their allowed limit and all their contributions to the various parts of the employer's 401(k) plan?

This still seems confusing:

"The nondeductible contributions still must show up as excess deferrals."

"it was moved to a Roth just a day ago."

Have you confirmed this qualified under the megabackdoor rules, then? You have two different employers, and the employer limit is per employer, even though the employee limit is per employee. If it was megabackdoor, you have that combined limit.

But then you tell us:

"So, it was not taxed"

Not Taxed means moving it to Roth is an In Plan Conversion and would be taxable at that point.

Megabackdoor means Taxed funds put into a 401(k) as Basis, then moved to the Roth 401(k) with no tax consequence.

So, which is it:

This is on the W2 as pre-tax, and the pre-tax from two W2 exceeds the employee limit.

Or,

This is a post-tax amount, and was a megabackdoor contribution.