After Tax Contributions / Mega Backdoor Roth - Etrade Solo 401k

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
dublin
Posts: 266
Joined: Sun Aug 28, 2011 2:12 pm

Re: After Tax Contributions / Mega Backdoor Roth - Etrade Solo 401k

Post by dublin »

aray wrote: Sun Sep 19, 2021 7:23 pm As an update, I've consulted with a CPA who has 10+ years experience, who has advised me of the following:
  • The after tax (non Roth) contributions can be made directly to the traditional 401k account. I can then immediately do the in plan Roth rollover to move these funds to the Roth 401k account. A separate account can be used for the after-tax (non Roth) contributions, but that's not required. If I'd prefer to open a 3rd account to exclusively hold the after tax contributions, the CPA says this will also be fine and it's up to me.
  • For the Roth 401k account, I don't need separate accounts for Roth 401k elective deferral contributions and amounts rolled over or converted to the Roth 401k. These amounts can be commingled.
  • As far as tax reporting when doing the in plan Roth rollover - Etrade would issue me the 1099-R, and I would set the record straight on the 1040 as far as what amount of the rollover is taxable vs. non-taxable (using 2020 1040 as an example): on line 5a would report the gross amount rolled over and on line 5b would report the taxable amount, and if there's no taxable amount then line 5b will show zero
  • As it's a solo 401k, no ACP testing would be needed with after tax contributions
  • The CPA advises that I need to keep track of contributions to the Roth 401k account in terms of elective salary deferral amounts and rollover amounts, but once funds are in the Roth 401k, the CPA doesn't see any need or benefit to keeping track of the earnings in the Roth account (as far as what amount of earnings are attributable to elective salary deferrals vs. attributable to rollover funds). Eventually when distributions are made from the Roth 401k account, the first distributions are considered a return of the contributions, and then after contributions are used up any remaining distributions are considered earnings. Whether the earnings are from Roth contributions or after tax contributions rolled over to the Roth account (earnings while in the Roth account), will not matter, I've been told.
Thanks for the update, OP - this is an encouraging update!

Related question I've been wondering about - if I move my existing Solo 401k over to Etrade today and enable the correct provisions for after tax contributions, would I be able to make such a contribution now for the 2020 year?

I know that (because I filed for an extension) my deadline for regular 2020 employee elective and employer contributions is October 15. Would that also apply to after tax contributions, even if my plan only allowed them starting now?
User avatar
retiredjg
Posts: 53989
Joined: Thu Jan 10, 2008 11:56 am

Re: After Tax Contributions / Mega Backdoor Roth - Etrade Solo 401k

Post by retiredjg »

aray wrote: Sun Sep 19, 2021 7:23 pm The CPA advises that I need to keep track of contributions to the Roth 401k account in terms of elective salary deferral amounts and rollover amounts, but once funds are in the Roth 401k, the CPA doesn't see any need or benefit to keeping track of the earnings in the Roth account (as far as what amount of earnings are attributable to elective salary deferrals vs. attributable to rollover funds).
It seems to me this means you will give up the "right" to roll the IRRs out to Roth IRA while still working.

Eventually when distributions are made from the Roth 401k account, the first distributions are considered a return of the contributions, and then after contributions are used up any remaining distributions are considered earnings. Whether the earnings are from Roth contributions or after tax contributions rolled over to the Roth account (earnings while in the Roth account), will not matter, I've been told.
I am pretty sure this is incorrect. This looks like Roth IRA distribution rules. We've been told that Roth 401k follows a different set of rules.

My understanding is that if you are under 59.5, each distribution from Roth 401k will be a pro-rated amount of contributions and earnings. The earnings will be taxed and have a 10% penalty.

If you are over 59.5 and it has been 5 tax years since the first contribution to Roth 401k, the Roth 401k is "qualified" and any money in the Roth 401k is available with no tax and no penalty.

If you are over 59.5 and the 5 years is not finished...the Roth 401k would not be qualified but I don't know how distributions would be handled.

I am not an accountant. :?
Topic Author
aray
Posts: 40
Joined: Mon Dec 18, 2017 9:04 am

Re: After Tax Contributions / Mega Backdoor Roth - Etrade Solo 401k

Post by aray »

I'm going to follow up with the CPA on the withdrawal rules, as this article also mentions how early withdrawals are a combination of contributions and earnings: https://www.investopedia.com/ask/answer ... -rules.asp
The goal is to not have to withdraw until after age 59.5, when both the contributions and earnings can be withdrawn tax-free, but this is still worth understanding.

If anyone sees anything else in the guidance given by the CPA that seems off, please let me know.
Related question I've been wondering about - if I move my existing Solo 401k over to Etrade today and enable the correct provisions for after tax contributions, would I be able to make such a contribution now for the 2020 year?

I know that (because I filed for an extension) my deadline for regular 2020 employee elective and employer contributions is October 15. Would that also apply to after tax contributions, even if my plan only allowed them starting now?
I am not sure the answer to this..
User avatar
retiredjg
Posts: 53989
Joined: Thu Jan 10, 2008 11:56 am

Re: After Tax Contributions / Mega Backdoor Roth - Etrade Solo 401k

Post by retiredjg »

If you find yourself younger than 59.5 with a Roth 401k and you want to take money from it, you can simply roll it to Roth IRA in order to take advantage of the Roth IRA ordering rules.
Topic Author
aray
Posts: 40
Joined: Mon Dec 18, 2017 9:04 am

Re: After Tax Contributions / Mega Backdoor Roth - Etrade Solo 401k

Post by aray »

Regarding the ordering of distribution rules for a Roth 401k, the CPA has confirmed he was incorrect and was confusing the rules with Roth IRA accounts.
The CPA shared this IRS page that also says early distributions from Roth 401k accounts are considered pro-rata share of earnings and basis unless you've had the Roth account for 5 years: https://www.irs.gov/retirement-plans/re ... tributions

So the basis calculation would be the following according to the CPA:
Basis of distribution = amount of distribution X amount of aggregate contributions / account balance

CPA advises that the aggregate contributions will include both direct Roth contributions and contributions rolled-over to the Roth 401k account (including pre-tax, after-tax, and any other contributions).

Thank you, retiredjg, for catching that!
Topic Author
aray
Posts: 40
Joined: Mon Dec 18, 2017 9:04 am

Re: After Tax Contributions / Mega Backdoor Roth - Etrade Solo 401k

Post by aray »

I've called Etrade a couple more times and gotten mixed messages about the ability to set up a 3rd account for the after tax contributions. One person told me that a 3rd account could have the same plan name but would need a different sequence #, while another person told me that I would just have to try submitting the new application requesting same sequence # and see what response I get from Etrade (originally, this second person told me after consulting with her team that a new plan name would be needed for a 3rd account, but after further discussion with her operations team she said I'd just have to try submitting an application and see how Etrade responds). Down the road when I need to file a 5500-EZ for the plan, it seems non-ideal at best to have two different active sequence numbers for the same plan, because the 5500-EZ form asks for a specific plan number, for example. I don't want to have inconsistencies with the plan name, either.

I called Department of Labor's EBSA (https://www.investor.gov/additional-res ... 401k-plans) and was told that Etrade is a fiduciary so they have to act in the best interest of the plan or else they could get in trouble, so it would seem unlikely that they're seemingly steering us to use the pre-existing traditional 401k for after tax contributions if that's not going to be compliant with the plan document. The plan document references a "a subaccount to reflect a Participant’s Nondeductible Employee Contributions", and the DOL person I spoke with said a subaccount refers to separate accounting. The plan document also references nondeductible employee contributions being "maintained under a separate account", and the DOL person was not able to define what "separate account" means and said I just need to follow the plan document, but the CPA I consulted said a 3rd account is not required, and that it's okay to place after tax contributions into the same traditional 401k account that's used for employer contributions. If there's another CPA or tax attorney in this community who disagrees with this CPA's guidance, please let me know as soon as possible.

I'm still thinking this over, but below is my current idea for how I could best keep things straight if I don't create a 3rd account and I just use the pre-existing traditional 401k account for after tax contributions. I would welcome any critique / feedback of this plan or ideas for improving it:
  • As a habit, I'll do an in-plan Roth rollover immediately after making a contribution to the traditional 401k account, whether it's an employee after tax contribution or an employer contribution, and I'll only make a new contribution to the traditional 401k after I've zeroed out the account via in-plan Roth rollovers. The RSDA settlement fund cash compounds daily and posts monthly, so for example if I make an employee after tax contribution on Oct. 5th, then I'll do the in plan Roth rollover a few days later and by mid October, and once any nominal interest amount posts within the coming month, I'll do another in plan Roth rollover of that small interest balance so the account is fully zeroed out and it's clear what nominal interest amount was attributable to the after tax contribution. Then once the traditional 401k is back to a $0.00 balance, I could make an employer contribution if wanted to, and I'd repeat the same in plan Roth rollover process to get the traditional 401k back to $0.00. Employee contributions are more time sensitive relative to a paycheck date as I understand, so that's why I'd make those employee after tax contributions first, followed by the employer contributions.
  • Any time I make an after tax contribution, Etrade said I could just send them a secure message (form not required) to code it as an employee contribution. I'll only be making employee elective deferral contributions directly to my Roth 401k account, so with this plan any time a traditional 401k account statement shows an "employee contribution", that will always mean it's an employee after tax contribution. I've explored the Etrade website, and there's also an option for assigning a custom Category to a transaction, so I'd also be able to create a custom After Tax Contribution category if I wanted to, but categories don't appear on account statements and transaction history where categories are visible are only available for the past 3 years as I understand, so seems more important to prioritize ensuring Etrade is labeling each after tax contribution as an employee contribution so those can be easily differentiated from employer contributions on account statements. I'll also keep track of contribution amounts and in plan Roth rollover amounts on my own in Excel.
  • With this plan described above, I would use the same traditional 401k account for both after tax contributions and employer contributions, but they'll never be commingled in the account at the same time, to make record keeping easier. I'm aiming to just make a few contributions per year, so I don't think it would be too time consuming to administer this.
User avatar
retiredjg
Posts: 53989
Joined: Thu Jan 10, 2008 11:56 am

Re: After Tax Contributions / Mega Backdoor Roth - Etrade Solo 401k

Post by retiredjg »

I continue to get the feeling that etrade has just not yet worked the bugs out of their plan or at least spread that information to all of the representatives who are trying to answer questions. I admire your persistence.

This article is 6 years old, but it does say you can use separate accounts for each bucket of money or a pooled account with separate accounting.

https://thefinancebuff.com/after-tax-co ... -401k.html

Harry Sit (thefinancebuff) posts as tfb here at Bogleheads. He is an early pioneer of mega-backdoor in Solo 401k and a strong supporter of using a third party administrator for this type of plan. If you go through the links, you will find several posts about this subject.

Good luck. :happy Please remember to post back here as things move along so that others can benefit from your progress.
Topic Author
aray
Posts: 40
Joined: Mon Dec 18, 2017 9:04 am

Re: After Tax Contributions / Mega Backdoor Roth - Etrade Solo 401k

Post by aray »

Thank you for sharing that link from thefinancebuff, It's interesting to see a pooled account mentioned there, which seems to give some credibility to the concept of using separate accounting for after tax contributions.

For Etrade's new plan document, it's curious that both "subaccount" and "separate account" are mentioned for after tax contributions (aka Nondeductible Employee Contributions). In the new adoption agreement, it mentions "responsibility of the employer, plan administrator, and/or trustee (if applicable) to maintain separate accounting for these contributions".

Another instance of using both phrases is found for rollover contributions: the plan document says a “separate account” will be maintained for each employee’s rollover contributions, and also references “a subaccount to reflect a Participant’s rollover contributions”.
Topic Author
aray
Posts: 40
Joined: Mon Dec 18, 2017 9:04 am

Re: After Tax Contributions / Mega Backdoor Roth - Etrade Solo 401k

Post by aray »

I called Etrade (Tax, Retirement, and Cost Basis department) one more time to ask for an explanation of the "separate account" phrase in the plan document, and spoke with Ryan (who said he's the only Ryan in the department). I pressed Ryan for an explanation on why section 3.05 of the plan document states "A separate account will be maintained by the Plan Administrator for the Nondeductible Employee Contributions of each Participant."

He eventually escalated my questions / concerns to upper management, and was able to get feedback from Jakob Roundy (Manager of the department). Ryan told me that Jakob advised that it's strongly discouraged for us to make the after tax employee contributions to the pre-existing traditional 401k account, but that it is allowed; however it's best to create a new standalone / separate traditional 401k account to be used for the after tax contributions (Nondeductible Employee Contributions is the official name in the plan document). Ryan was told by Jakob that the recommended way to go about this is to submit a new application to establish a 3rd account, and to use the same plan name and same sequence number, and to include a simple letter of instruction when submitting this application for the 3rd account specifying how it's a new traditional 401k account to be used for Nondeductible Employee Contributions ("per Section 3.05 of the plan document" is what I'm also going to include on my letter of instruction).

This is great news assuming I'm able to open a 3rd account with the same plan name and same sequence number as discussed during the phone call. I think I will apply for this 3rd account as my Plan A.
User avatar
retiredjg
Posts: 53989
Joined: Thu Jan 10, 2008 11:56 am

Re: After Tax Contributions / Mega Backdoor Roth - Etrade Solo 401k

Post by retiredjg »

Baby steps...but I think you are making progress. :happy
Topic Author
aray
Posts: 40
Joined: Mon Dec 18, 2017 9:04 am

Re: After Tax Contributions / Mega Backdoor Roth - Etrade Solo 401k

Post by aray »

As a quick update, I submitted my application yesterday to Etrade to establish the 3rd account to be used for after tax employee contributions, and it was approved and opened today! I now have three solo 401k accounts at Etrade, all under the same plan name and sequence number, and all accessible with the same user login profile:
1) Roth 401k
2) Pre-tax 401k
3) After tax 401k
dublin
Posts: 266
Joined: Sun Aug 28, 2011 2:12 pm

Re: After Tax Contributions / Mega Backdoor Roth - Etrade Solo 401k

Post by dublin »

aray wrote: Thu Sep 23, 2021 5:00 pm As a quick update, I submitted my application yesterday to Etrade to establish the 3rd account to be used for after tax employee contributions, and it was approved and opened today! I now have three solo 401k accounts at Etrade, all under the same plan name and sequence number, and all accessible with the same user login profile:
1) Roth 401k
2) Pre-tax 401k
3) After tax 401k
That's an awesome update - thanks!
dublin
Posts: 266
Joined: Sun Aug 28, 2011 2:12 pm

Re: After Tax Contributions / Mega Backdoor Roth - Etrade Solo 401k

Post by dublin »

aray wrote: Thu Sep 23, 2021 5:00 pm As a quick update, I submitted my application yesterday to Etrade to establish the 3rd account to be used for after tax employee contributions, and it was approved and opened today! I now have three solo 401k accounts at Etrade, all under the same plan name and sequence number, and all accessible with the same user login profile:
1) Roth 401k
2) Pre-tax 401k
3) After tax 401k
Hey there - thought I'd bump this thread a month later and see if you've had success with the MBDR with your new accounts!

I've been muddling my way through the application/amendment form for a month now since a few things are murky to me, but if you're having success with the MBDR that would be great motivation! :beer
Topic Author
aray
Posts: 40
Joined: Mon Dec 18, 2017 9:04 am

Re: After Tax Contributions / Mega Backdoor Roth - Etrade Solo 401k

Post by aray »

Sorry, I just saw your message - yes, I made a contribution to the new after tax account within my Etrade Solo 401k and immediately did an in plan Roth rollover of those funds.
dublin
Posts: 266
Joined: Sun Aug 28, 2011 2:12 pm

Re: After Tax Contributions / Mega Backdoor Roth - Etrade Solo 401k

Post by dublin »

aray wrote: Sat Dec 11, 2021 6:11 am Sorry, I just saw your message - yes, I made a contribution to the new after tax account within my Etrade Solo 401k and immediately did an in plan Roth rollover of those funds.
Amazing! I just finished getting my accounts set up this past week, and will be taking contributions for a spin this coming week, just in time before the option is possibly removed on Jan 1!
HomeStretch
Posts: 11335
Joined: Thu Dec 27, 2018 2:06 pm

Re: After Tax Contributions / Mega Backdoor Roth - Etrade Solo 401k

Post by HomeStretch »

aray wrote: Sat Dec 11, 2021 6:11 am Sorry, I just saw your message - yes, I made a contribution to the new after tax account within my Etrade Solo 401k and immediately did an in plan Roth rollover of those funds.
Congratulations on persevering and finding a way to use the mainstream E*Trade Solo 401k plan for a mega backdoor Roth!

Please update after you receive your tax forms to let us know if E*Trade got the tax reporting correct.
Topic Author
aray
Posts: 40
Joined: Mon Dec 18, 2017 9:04 am

Re: After Tax Contributions / Mega Backdoor Roth - Etrade Solo 401k

Post by aray »

Congratulations on persevering and finding a way to use the mainstream E*Trade Solo 401k plan for a mega backdoor Roth!

Please update after you receive your tax forms to let us know if E*Trade got the tax reporting correct.
Thank you, and sure I'll aim to follow up on Etrade's tax form once that comes out!
tay
Posts: 7
Joined: Wed Dec 22, 2021 12:20 am

Re: After Tax Contributions / Mega Backdoor Roth - Etrade Solo 401k

Post by tay »

aray wrote: Thu Sep 23, 2021 5:00 pm As a quick update, I submitted my application yesterday to Etrade to establish the 3rd account to be used for after tax employee contributions, and it was approved and opened today! I now have three solo 401k accounts at Etrade, all under the same plan name and sequence number, and all accessible with the same user login profile:
1) Roth 401k
2) Pre-tax 401k
3) After tax 401k
Hi aray and the many contributors here, thank you so much for all the invaluable info. This is by far the most civilized yet informative board I've seen.
I know it's very last minute, but I'm attempting to get my wife's one-person LLC (with EIN) set up with some kind of solo 401k. I happened to call eTrade today, and to my surprise/much suspicion they said the can do MBDR. I stumbled ono this board in the process of confirming this is true. And seems like it is!

I'd really appreciate some help on these questions:
1) aray, is there any reason/benefit that you're not rolling the Nondeductible Employee Contribution (NDEC) amount into a Roth IRA, which I thought is more flexible than Roth 401k?

2) if my purpose is to maximize MBDR since we already have other rollover IRAs (ie, tax-deferred), can I skip both employee AND employer contributions and just put $58k as NDEC, then roll it over to Roth IRA? This would require only 2 accounts, traditional 401k for the NDEC, and Roth IRA, isn't it? Or is there a rule that I need to max out the $19.5k elective deferral (into Roth 401k as preferred) before tapping into the remaining amount?

3) what's the deadline for making the employee contribution (either elective deferral or NDEC)? Almost all brokerages say the employee part needs to be made by 12/31, but IRS Pub 560 says "Owner/employees: The employee deferrals must be elected by the end of the tax year and then can be made by the tax return filing deadline, including extensions." What exactly does "must be elected" entail? What's really funny is that eTrade told me they code all contributions made by the end of Jan to be for the previous tax year, without any special request. So sounds like I got a month to fund the contributions.

4) Since my wife's business is a one-person LLC, she's not paying herself a W-2 wage, and the earnings are just in the business bank account. Does this affect any ability to contribute? Does it matter if all contributions (employer & employee) come from the same business bank account?

5) eTrade said they don't care if the contribution is pre-tax or after-tax, since they don't produce any form when we contribute. As plan admin, other than the detailed records we should keep, how are we to report contributions to IRS, either pre- or after-tax?

6) For rollover, aray you said "As far as tax reporting when doing the in plan Roth rollover - Etrade would issue me the 1099-R, and I would set the record straight on the 1040 as far as what amount of the rollover is taxable vs. non-taxable..." Are you saying since eTrade won't distinguish what the rollover is for and taxable or not, they'll simply put the entire rollover amount on on box 1 Gross Distribution, and leave everything else blank? Aren't we dependent on them putting code G in box 7 to indicate it's a rollover not an actual distribution? Can you really "set the record straight" on 1040 if they put something wrong?

7) many posters expressed concern about eTrade not being the plan administrator. Is this still a big concern for not doing this eTrade MBDR? I have no problem keeping records, since my intention is to make 1 slump sum NDEC a year (or at worst 1 elective deferral and the remaining in NDEC).

Separate question on 3rd party service provider like mysolo401k.com. Once you establishes the solo 401k/MBDR with them, is there any way to sever ties? Obviously this will be when we no longer need to fund additional MBDR thru their after-tax contribution account.

I'd much appreciate it if any oversight can be pointed out. Thank you all!
Last edited by tay on Wed Dec 22, 2021 3:03 am, edited 3 times in total.
Topic Author
aray
Posts: 40
Joined: Mon Dec 18, 2017 9:04 am

Re: After Tax Contributions / Mega Backdoor Roth - Etrade Solo 401k

Post by aray »

1) aray, is there any reason/benefit that you're not rolling the Nondeductible Employee Contribution (NDEC) amount into a Roth IRA, which I thought is more flexible than Roth 401k?
I may explore doing the MBR to a Roth IRA in the future, but at least for now I opted to do the in plan Roth rollover within the 401k plan with a couple things in mind -
1) Seems simpler and less risky in terms of error avoidance. Also, from research it seemed like a best practice may be to establish a separate standalone Roth IRA to be used for MBR funds, separate from my regular Roth IRA, and I'm not completely opposed to having two Roth IRAs but it would just create more management / maintenance work.
2) Asset protection appears to be better with the 401k compared to an IRA. From reading things online, I got the impression that maybe some of the asset protection characteristics could be carried over to the Roth IRA if doing a MBR, since the funds were originally in the 401k, but then it comes back to the simplicity consideration - would I have to maintain certain documentation proving the funds were originally in a 401k to maintain any increased potential asset protection?
2) if my purpose is to maximize MBDR since we already have other rollover IRAs (ie, tax-deferred), can I skip both employee AND employer contributions and just put $58k as NDEC, then roll it over to Roth IRA? This would require only 2 accounts, traditional 401k for the NDEC, and Roth IRA, isn't it? Or is there a rule that I need to max out the $19.5k elective deferral (into Roth 401k as preferred) before tapping into the remaining amount?
I'm not aware of a rule requiring maxing out of the elective deferral before making the NDEC. I don't know if there would be any issues making the entire $58k a NDEC. I'm not sure if it's fine or not to have an NDEC account without having a regular pre-tax traditional 401k account as well.
3) what's the deadline for making the employee contribution (either elective deferral or NDEC)? Almost all brokerages say the employee part needs to be made by 12/31, but IRS Pub 560 says "Owner/employees: The employee deferrals must be elected by the end of the tax year and then can be made by the tax return filing deadline, including extensions." What exactly does "must be elected" entail? What's really funny is that eTrade told me they code all contributions made by the end of Jan to be for the previous tax year, without any special request. So sounds like I got a month to fund the contributions.
A salary reduction agreement is needed and I believe that's what "elected" is referring to. Here's an excerpt from the plan document: "A Participant who wishes to enroll as a Contributing Participant must deliver (either in writing or in any other form permitted by the IRS and the DOL) a salary reduction agreement (or agreement to make Nondeductible Employee Contributions) to the Plan Administrator."

Below are notes I have on file; I have a single member LLC taxed as an S corporation and issue wages & W-2 to myself, so not sure how these translate for your wife's situation since it doesn't sound like she takes wages, but anyways here are the contribution deadlines I follow:
IRS publication 4222: https://www.irs.gov/pub/irs-pdf/p4222.pdf
"For plans with fewer than 100 participants, salary reduction contributions deposited with the plan no later than the 7th business day following withholding by the employer will be considered contributed in compliance with the law."
https://www.irs.gov/pub/irs-pdf/p3151a.pdf
Business days include every calendar day other than Saturdays, Sundays, or legal holidays. The term "legal holiday" means any District of Columbia legal holiday (legal holiday is a federal holiday: https://dchr.dc.gov/page/holiday-schedules)

I'm not sure how to reconcile the deadlines above, with the much later tax filing deadline quoted in Pub 560 and would be curious to hear a CPA reconcile these.
4) Since my wife's business is a one-person LLC, she's not paying herself a W-2 wage, and the earnings are just in the business bank account. Does this affect any ability to contribute? Does it matter if all contributions (employer & employee) come from the same business bank account?
I'm not a CPA so can't give any professional opinion here, but I can say that in my situation, both employer and employee contributions come from the same business operating account.
5) eTrade said they don't care if the contribution is pre-tax or after-tax, since they don't produce any form when we contribute. As plan admin, other than the detailed records we should keep, how are we to report contributions to IRS, either pre- or after-tax?
For after tax contributions that I'm rolling over to the Roth 401k, the CPA I talked to shared a 1040 form as an example and said that on line 5a ("Pensions and annuities") of that I'd report the gross amount that is rolled over to the Roth, and on line 5b (the right side of the same line) would report the taxable amount, if any. "If there is no taxable amount, line 5b will show zero or can be left blank".
"Depending on the information ETrade reports on the 1099-R, it may be as simple as reporting "0" on the taxable amount. In box 7 of the form 1099-R, ETrade will report a code number that represents the type of distribution/rollover, that code should indicate that it is a rollover type transaction."
6) For rollover, aray you said "As far as tax reporting when doing the in plan Roth rollover - Etrade would issue me the 1099-R, and I would set the record straight on the 1040 as far as what amount of the rollover is taxable vs. non-taxable..." Are you saying since eTrade won't distinguish what the rollover is for and taxable or not, they'll simply put the entire rollover amount on on box 1 Gross Distribution, and leave everything else blank? Aren't we dependent on them putting code G in box 7 to indicate it's a rollover not an actual distribution? Can you really "set the record straight" on 1040 if they put something wrong?
According to the CPA I talked to, Etrade will put a code to describe the type of distribution. Etrade won't distinguish if it will be taxable or non-taxable. I didn't mean to imply previously that Etrade wouldn't put any code on the 1099-R; I'm assuming they would put something in box 7, and I actually just called Etrade to confirm, and they said that yes they will put G in box 7; they also explained how they'll put the gross amount in box 1, and I was told they don't put anything in box 2 (taxable amount) because Etrade doesn't keep track of what portion of the rollover was from pre-tax vs. NDEC (after tax) funds.
7) many posters expressed concern about eTrade not being the plan administrator. Is this still a big concern for not doing this eTrade MBDR? I have no problem keeping records, since my intention is to make 1 slump sum NDEC a year (or at worst 1 elective deferral and the remaining in NDEC).
If you're going to do the MBR yourself with Etrade, I'd encourage you to just be sure to take time and review the plan document so you stay compliant long term. Keep any salary reduction agreement updated as necessary. Also monitor your inbox as every 6 years you'll need to restate the plan. If you as spouse eventually join the same solo 401k plan, pay attention to your Entry Date (would either need to be Jan. 1st or July 1st, by default, as I understand) before you start contributing. Be sure to file form 5500EZ every year once plan assets exceed $250k to avoid hefty penalty fees by the IRS. This isn't a comprehensive list, but just some things that come to mind right now.
Separate question on 3rd party service provider like mysolo401k.com. Once you establishes the solo 401k/MBDR with them, is there any way to sever ties? Obviously this will be when we no longer need to fund additional MBDR thru their after-tax contribution account.
I'm assuming it's possible to switch to a different company from a third party administrator doing a plan amendment / restatement, although haven't tried doing that myself (other than switching from Vanguard to Etrade).

Good luck and let us know how things go for you!
dublin
Posts: 266
Joined: Sun Aug 28, 2011 2:12 pm

Re: After Tax Contributions / Mega Backdoor Roth - Etrade Solo 401k

Post by dublin »

aray wrote: Mon Dec 20, 2021 5:11 pm
Congratulations on persevering and finding a way to use the mainstream E*Trade Solo 401k plan for a mega backdoor Roth!

Please update after you receive your tax forms to let us know if E*Trade got the tax reporting correct.
Thank you, and sure I'll aim to follow up on Etrade's tax form once that comes out!
Just completed my first Solo 40k1 In-Plan-Roth-Rollover at Etrade, after funding the after-tax account in one-business-day online transfers using both their website and my bank's bill-pay utility - many thanks to you!
dublin
Posts: 266
Joined: Sun Aug 28, 2011 2:12 pm

Re: After Tax Contributions / Mega Backdoor Roth - Etrade Solo 401k

Post by dublin »

tay wrote: Wed Dec 22, 2021 1:38 am 1) aray, is there any reason/benefit that you're not rolling the Nondeductible Employee Contribution (NDEC) amount into a Roth IRA, which I thought is more flexible than Roth 401k?
For me, in addition to the reasons aray mentioned, one other reason to stick with the Roth 401k is that in the (relatively unlikely, but possible) event that I want to invest in leveraged real estate in the future, a Roth 401k avoids the UBIT/UDFI issues that a Roth IRA faces.

Also, I don't really have any reason to favor the Roth IRA in this case, since with a Solo Roth 401k, I can basically invest in anything I want anyway and don't pay any fees (unlike an employer Roth 401k where you might have more limited investment options, or fees).
tay wrote: Wed Dec 22, 2021 1:38 am 3) what's the deadline for making the employee contribution (either elective deferral or NDEC)? Almost all brokerages say the employee part needs to be made by 12/31, but IRS Pub 560 says "Owner/employees: The employee deferrals must be elected by the end of the tax year and then can be made by the tax return filing deadline, including extensions." What exactly does "must be elected" entail? What's really funny is that eTrade told me they code all contributions made by the end of Jan to be for the previous tax year, without any special request. So sounds like I got a month to fund the contributions.
If your wife is purely self-employed and does not elect S-corp treatment or pay herself a W-2 wage, the deadline for both employee and employer contributions (including MBDR after-tax contributions) is in fact the tax return filing deadline, including extensions. If you think about it, this is logical, because the contribution limits for a self-employed individuals EE/ER/AT contributions are all dependent on first completing Schedule C.
tay wrote: Wed Dec 22, 2021 1:38 am 4) Since my wife's business is a one-person LLC, she's not paying herself a W-2 wage, and the earnings are just in the business bank account. Does this affect any ability to contribute? Does it matter if all contributions (employer & employee) come from the same business bank account?
I'm not an accountant either, but I'm in the same situation more or less, and I'm making all contributions from my LLC's checking account, both employee and employer.

If I had to guess, it would probably be ok with the IRS if you made the contributions from some other account (like your personal checking), since the Single Member LLC is a disregarded entity anyway, but a) it doesn't hurt and keeps things cleaner, and b) it might help as far as keeping the LLC segregated and not 'piercing the veil'.
tay wrote: Wed Dec 22, 2021 1:38 am 5) eTrade said they don't care if the contribution is pre-tax or after-tax, since they don't produce any form when we contribute. As plan admin, other than the detailed records we should keep, how are we to report contributions to IRS, either pre- or after-tax?
There is no form for reporting to the IRS the year, employee/employer, or after/pre tax status of Individual 401k contributions, other than however they may show up on your tax return. It is simply your job to keep good records.
tay wrote: Wed Dec 22, 2021 1:38 am 7) many posters expressed concern about eTrade not being the plan administrator. Is this still a big concern for not doing this eTrade MBDR? I have no problem keeping records, since my intention is to make 1 slump sum NDEC a year (or at worst 1 elective deferral and the remaining in NDEC).
I'm not sure what the concern is here - I have been my own admin for my Solo 401k for several years at Fidelity and never had any problems (I do keep good records). I am doing the same at Etrade.
tay
Posts: 7
Joined: Wed Dec 22, 2021 12:20 am

Re: After Tax Contributions / Mega Backdoor Roth - Etrade Solo 401k

Post by tay »

Hi aray,
Thank you so much for your speedy response, and as always for sharing your experience. It's tremendously helpful.

Thank you dublin as well for sharing your experience.

I asked about going straight to Roth IRA because we don't have any Roth nor Indiv 401k. So to me if I can avoid the employee elective deferral and just do the max $58 NDEC, I assume I just need a Roth IRA to roll into. Of course you point about asset protection is very important, and something I need to get familiar on. We still have the option to rollover a Roth 401k into a Roth IRA anytime without any tax consequence or issue, right?

I just spoke to a financial advisor, and she says we must max out the $19.5k PRE-TAX employee contribution first. And it has to be pre-tax 401k, not Roth 401k. This is contrary to what I've read that the EE contribution can be pre-tax or Roth, as both are supported by ETrade solo 401k. Which is right?

I called ETrade again, and spoke to Ryan who aray did before, and he sounded confident on the questions I brought up:
- definitely can have a 2nd indiv. 401k account for NDEC. They think it's a good idea too, but not going as far as recommending it. Just need to fill out a separate account application selecting Indiv 401k and using the same plan name and seq number.
- confirmed that they're coding all employee contribution before Jan 31 as for the previous year
- they will code all rollover as a direct rollover on 1099-R, not distribution. Without being able to confirm the exact code, sounds like this will be code G in box 7
- can roll NDEC into Roth 401k or Roth IRA

Thanks again!
dublin
Posts: 266
Joined: Sun Aug 28, 2011 2:12 pm

Re: After Tax Contributions / Mega Backdoor Roth - Etrade Solo 401k

Post by dublin »

tay wrote: Wed Dec 22, 2021 2:39 pm I just spoke to a financial advisor, and she says we must max out the $19.5k PRE-TAX employee contribution first. And it has to be pre-tax 401k, not Roth 401k. This is contrary to what I've read that the EE contribution can be pre-tax or Roth, as both are supported by ETrade solo 401k. Which is right?
This is incorrect. You do not have to make any Traditional or Roth EE contributions before you can make after-tax contributions.
tay wrote: Wed Dec 22, 2021 2:39 pm - definitely can have a 2nd indiv. 401k account for NDEC. They think it's a good idea too, but not going as far as recommending it. Just need to fill out a separate account application selecting Indiv 401k and using the same plan name and seq number.
- confirmed that they're coding all employee contribution before Jan 31 as for the previous year
Yes - I currently have three Solo 401k accounts open at Etrade (opened all three together) - one Traditional, one Roth, and one After Tax (which as far as Etrade is concerned is simply a second Traditional).

And just to note, the 'coding' that they do is really just for your convenience anyway, so it doesn't actually matter as long as you have your own records. Etrade doesn't report it to the IRS one way or the other.
HomeStretch
Posts: 11335
Joined: Thu Dec 27, 2018 2:06 pm

Re: After Tax Contributions / Mega Backdoor Roth - Etrade Solo 401k

Post by HomeStretch »

tay wrote: Wed Dec 22, 2021 1:38 am … aray, is there any reason/benefit that you're not rolling the Nondeductible Employee Contribution (NDEC) amount into a Roth IRA, which I thought is more flexible than Roth 401k? …
Unless you are age 59-1/2+, I don’t believe E*Trade’s Solo 401k plan allows in-service distributions to a Roth IRA. I believe the only option for an E*Trade mega backdoor prior to age 59-1/2 is to do an in-plan Roth rollover.
User avatar
retiredjg
Posts: 53989
Joined: Thu Jan 10, 2008 11:56 am

Re: After Tax Contributions / Mega Backdoor Roth - Etrade Solo 401k

Post by retiredjg »

tay wrote: Wed Dec 22, 2021 1:38 am 7) many posters expressed concern about eTrade not being the plan administrator.
I'm under the impression that e-trade is doing the plan administration for these. For those of you using this, is that incorrect?

If they are not, how is this different from those other guys that provide documents but no plan administration?
tay
Posts: 7
Joined: Wed Dec 22, 2021 12:20 am

Re: After Tax Contributions / Mega Backdoor Roth - Etrade Solo 401k

Post by tay »

retiredjg wrote: Wed Dec 22, 2021 3:28 pm
tay wrote: Wed Dec 22, 2021 1:38 am 7) many posters expressed concern about eTrade not being the plan administrator.
I'm under the impression that e-trade is doing the plan administration for these. For those of you using this, is that incorrect?

If they are not, how is this different from those other guys that provide documents but no plan administration?
ETrade told me they're the "trustee", while we the plan holder/administrator.

Strictly from my understanding (welcome to correct), if those 3rd party service provider only provide a plan document allowing for NDEC and in-plan rollover to Roth, sounds like ETrade now has a flexible plan to allow exactly these to facilitate MBDR. Obviously then we'll have to handle everything ourselves and be knowledgeable enough.
Topic Author
aray
Posts: 40
Joined: Mon Dec 18, 2017 9:04 am

Re: After Tax Contributions / Mega Backdoor Roth - Etrade Solo 401k

Post by aray »

I'm under the impression that e-trade is doing the plan administration for these. For those of you using this, is that incorrect?
If they are not, how is this different from those other guys that provide documents but no plan administration?
The plan document says this regarding the Plan Administrator: "Your Employer is responsible for the day-to-day administration of the Plan and is the Plan Administrator". My company / I am administering my plan at Etrade. Etrade is the pre-approved document provider, as stated in section 8 of the adoption agreement, so they're providing me with the Plan Document that's already been approved by the IRS, but it's up to me to ensure the plan document is followed. The plan document says "The Pre-approved Document Provider will in no case be designated as the Plan Administrator" and also says that Pre-Approved Document Provider "Means the entity specified in the Adoption Agreement that makes this pre-approved plan document available to employers for adoption."

Historically, none of the free Solo 401k plans from the major brokerages allowed you to do a mega backdoor Roth: https://www.bogleheads.org/wiki/Mega-ba ... 401k_plans (this article needs to be updated, since Etrade now allows the after tax contributions).
The wiki mentions the risks of doing the MBR without a TPA, which is why it's important to be familiar with the plan document if doing the MBR at Etrade. I'm not sure if Fidelity, Vanguard, etc. also now offer after tax contributions, but this is a new development with Etrade in 2021.
Unless you are age 59-1/2+, I don’t believe E*Trade’s Solo 401k plan allows in-service distributions to a Roth IRA. I believe the only option for an E*Trade mega backdoor prior to age 59-1/2 is to do an in-plan Roth rollover.
I'm currently just doing the in-plan Roth rollover of the after tax contributions and haven't looked into the Roth IRA option very much, but here's perhaps a relevant excerpt from section 5.01 D of the plan document: "A Participant may at any time, and upon a request submitted to the Plan Administrator (either in writing or in any other form permitted under rules promulgated by the IRS and DOL), withdraw an amount from their Individual Account attributable to Nondeductible Employee Contributions (including earnings thereon). In the event the portion of a Participant’s Individual Account attributable to Nondeductible Employee Contributions experiences a loss such that the amount remaining in such subaccount is less than the amount of Nondeductible Employee Contributions made by the Participant, the maximum amount which the Participant may withdraw is an amount equal to the remaining portion of the Participant’s Individual Account attributable to Nondeductible Employee Contributions."
tay
Posts: 7
Joined: Wed Dec 22, 2021 12:20 am

Re: After Tax Contributions / Mega Backdoor Roth - Etrade Solo 401k

Post by tay »

HomeStretch wrote: Wed Dec 22, 2021 3:23 pm
tay wrote: Wed Dec 22, 2021 1:38 am … aray, is there any reason/benefit that you're not rolling the Nondeductible Employee Contribution (NDEC) amount into a Roth IRA, which I thought is more flexible than Roth 401k? …
Unless you are age 59-1/2+, I don’t believe E*Trade’s Solo 401k plan allows in-service distributions to a Roth IRA. I believe the only option for an E*Trade mega backdoor prior to age 59-1/2 is to do an in-plan Roth rollover.
Q13 on pg 4 of this:
https://content.etrade.com/etrade/estat ... ooklet.pdf

Called ETrade again, the retirement rep says they definitely allow rollover from after-tax contribution (NDEC) to either Roth 401k or Roth IRA of your choice. I specifically asked if they consider the conversion from NDEC to Roth IRA a "rollover" not a "distribution", he said yes. The 1099-R they furnish for the rollover will say "undetermined" for the taxable amount (meaning it's up to us when filing taxes), and code G in box 7 for rollover. Sounds like they're being really flexible! Am I missing anything?
tay
Posts: 7
Joined: Wed Dec 22, 2021 12:20 am

Re: After Tax Contributions / Mega Backdoor Roth - Etrade Solo 401k

Post by tay »

Regarding EIN

@aray @dublin, or anyone who has a solo 401k
When you opened the solo 401k, did you get a separate EIN and use that instead of your company's EIN in the account application? I'm reading these that seem to say we definitely should:

https://www.irs.gov/retirement-plans/ho ... plan-trust
https://www.mysolo401k.net/solo-401k/ein-number/
Why does my solo 401k plan require a separate EIN?
ANSWER:
The 401k needs to have a separate EIN from your self-employed business or SSN. This is clear based on the IRS guidance and because the 401k is a retirement trust which is distinct from the Corporation (i.e. the account that will be set up at Fidelity for the 401k will not be an account for you personally but rather a 401k for your benefit). This is beneficial in the instance that any tax reporting is done with respect to the Solo 401k, it will be done with respect to the tax ID for the Solo 401k...

But I'm not sure how/where that's used on the ETrade application, which still needs our business EIN and SSN.
Employer Information:
Adopting Employer’s Federal Tax Identification Number (required): This is the tax identification number assigned to your business and should match what you provide on the first page of your application.
dublin
Posts: 266
Joined: Sun Aug 28, 2011 2:12 pm

Re: After Tax Contributions / Mega Backdoor Roth - Etrade Solo 401k

Post by dublin »

tay wrote: Wed Dec 22, 2021 5:47 pm Regarding EIN

@aray @dublin, or anyone who has a solo 401k
When you opened the solo 401k, did you get a separate EIN and use that instead of your company's EIN in the account application? I'm reading these that seem to say we definitely should:

https://www.irs.gov/retirement-plans/ho ... plan-trust
https://www.mysolo401k.net/solo-401k/ein-number/
Why does my solo 401k plan require a separate EIN?
ANSWER:
The 401k needs to have a separate EIN from your self-employed business or SSN. This is clear based on the IRS guidance and because the 401k is a retirement trust which is distinct from the Corporation (i.e. the account that will be set up at Fidelity for the 401k will not be an account for you personally but rather a 401k for your benefit). This is beneficial in the instance that any tax reporting is done with respect to the Solo 401k, it will be done with respect to the tax ID for the Solo 401k...

But I'm not sure how/where that's used on the ETrade application, which still needs our business EIN and SSN.
Employer Information:
Adopting Employer’s Federal Tax Identification Number (required): This is the tax identification number assigned to your business and should match what you provide on the first page of your application.
No, I just used my LLC's EIN (both when it was at Fidelity, and now at Etrade).
tay
Posts: 7
Joined: Wed Dec 22, 2021 12:20 am

Re: After Tax Contributions / Mega Backdoor Roth - Etrade Solo 401k

Post by tay »

dublin wrote: Wed Dec 22, 2021 5:53 pm No, I just used my LLC's EIN (both when it was at Fidelity, and now at Etrade).
I'm starting to think the separate EIN is only needed for people who use those 3rd party service provider for the non-prototype plan.

https://thefinancebuff.com/executing-me ... -401k.html
"I opened new investment-only retirement accounts at Fidelity, one per participant per contribution type. I transferred existing assets to the new accounts.
I had to get a separate EIN for my plan. I already have an EIN for my business, but my business doesn’t own these accounts. When I had the plan under Fidelity’s prototype plan, Fidelity Management Trust Company (FMTC) was the trustee. The accounts were held in trust by FMTC. Now that I’m on my own, I needed an EIN for the plan itself."

I think the key here is, through 3rd party service provider solo 401k, the accounts being opened are investment-only retirement accounts, not the traditional or Roth solo 401k account. So they'd need a separate entity to own the investment accounts. Sounds right?

tay wrote: Wed Dec 22, 2021 5:37 pm
HomeStretch wrote: Wed Dec 22, 2021 3:23 pm Unless you are age 59-1/2+, I don’t believe E*Trade’s Solo 401k plan allows in-service distributions to a Roth IRA. I believe the only option for an E*Trade mega backdoor prior to age 59-1/2 is to do an in-plan Roth rollover.
Q13 on pg 4 of this:
https://content.etrade.com/etrade/estat ... ooklet.pdf

Called ETrade again, the retirement rep says they definitely allow rollover from after-tax contribution (NDEC) to either Roth 401k or Roth IRA of your choice. I specifically asked if they consider the conversion from NDEC to Roth IRA a "rollover" not a "distribution", he said yes. The 1099-R they furnish for the rollover will say "undetermined" for the taxable amount (meaning it's up to us when filing taxes), and code G in box 7 for rollover. Sounds like they're being really flexible! Am I missing anything?
This says there's an alternative to in-service distribution to do MBDR conversion:
https://thecollegeinvestor.com/17561/un ... -roth-ira/
Alternate Approach: An “alternate” Mega step 2 would be if the 401k allowed In-Plan Roth Conversions (IRS calls it In-Plan Rollovers to Designated Roth Account). With this, you can simply click a button with your 401k provider and rollover the after-tax portion to the Roth Account.

dublin wrote: Wed Dec 22, 2021 2:51 pm This is incorrect. You do not have to make any Traditional or Roth EE contributions before you can make after-tax contributions.
Thank you for confirming my understanding. Anything else I might be missing that prevents me from entirely max'ing out $58k thru NDEC to maximize MBDR? Once again, our situation is 1) single-member LLC, 2) no W-2 wage (ie, filing as Sched C), 3) over $150k business profit
Topic Author
aray
Posts: 40
Joined: Mon Dec 18, 2017 9:04 am

Re: After Tax Contributions / Mega Backdoor Roth - Etrade Solo 401k

Post by aray »

I also just used my LLC's EIN. I called Etrade's tax, retirement, and cost basis team to confirm it's fine and was told that's perfectly fine with the Etrade solo 401k and how folks usually do it.
dublin
Posts: 266
Joined: Sun Aug 28, 2011 2:12 pm

Re: After Tax Contributions / Mega Backdoor Roth - Etrade Solo 401k

Post by dublin »

tay wrote: Wed Dec 22, 2021 6:38 pm Thank you for confirming my understanding. Anything else I might be missing that prevents me from entirely max'ing out $58k thru NDEC to maximize MBDR? Once again, our situation is 1) single-member LLC, 2) no W-2 wage (ie, filing as Sched C), 3) over $150k business profit
As far as I can tell, no, based on the circumstances you described there would be nothing stopping you from putting in the full $58k as NDEC.
tay
Posts: 7
Joined: Wed Dec 22, 2021 12:20 am

Re: After Tax Contributions / Mega Backdoor Roth - Etrade Solo 401k

Post by tay »

Thank you @aray, @dublin. MBDR here I come!
dublin
Posts: 266
Joined: Sun Aug 28, 2011 2:12 pm

Re: After Tax Contributions / Mega Backdoor Roth - Etrade Solo 401k

Post by dublin »

tay wrote: Wed Dec 22, 2021 8:36 pm Thank you @aray, @dublin. MBDR here I come!
Awesome - the last piece of advice I'd give you is that it took me a number of phone calls over a couple of weeks to get all of the new accounts properly squared away at Etrade, connected to my existing Etrade login, etc - so don't be dissuaded if it's a bit of a bumpy ride getting everything set up! Now that it's done, it's smooth as butter, and the Etrade reps I've chatted with along the way have been stellar - knowledgeable and helpful, and happy to follow up.

Good luck, and welcome to the club!
User avatar
sarabayo
Posts: 722
Joined: Fri Jun 29, 2018 6:59 pm

Re: After Tax Contributions / Mega Backdoor Roth - Etrade Solo 401k

Post by sarabayo »

tay wrote: Wed Dec 22, 2021 4:27 pm
retiredjg wrote: Wed Dec 22, 2021 3:28 pm
tay wrote: Wed Dec 22, 2021 1:38 am 7) many posters expressed concern about eTrade not being the plan administrator.
I'm under the impression that e-trade is doing the plan administration for these. For those of you using this, is that incorrect?

If they are not, how is this different from those other guys that provide documents but no plan administration?
ETrade told me they're the "trustee", while we the plan holder/administrator.
According to TheFinanceBuff's research in 2015, E*Trade functions as the Custodian in its Solo 401(k) product, while some other companies providing a Solo 401(k) product, such as Vanguard and Fidelity, function as the Trustee. It's interesting if that's now changed in E*Trade's case 🤔
catchinup
Posts: 656
Joined: Sun Dec 31, 2017 5:35 pm

Re: After Tax 401(k) Questions - Etrade Solo 401(k)

Post by catchinup »

illumination wrote: Sat Aug 21, 2021 10:08 am Just to give you my experience, I went down this road with E-Trade purely because they were about the only brokerage that had the option of a Roth 401k for a solo 401k plan. The people I talked to at E-Trade were largely clueless and gave me all sorts of contradictory information that didn't jive with some of the experts here. I ended up not going with them just because I felt the support wasn't there and was afraid of a tax nightmare. So make sure you check and re-check everything before you do this and don't rely solely on their support.

Solo Roth 401k and MegaBackDoor Roths are incredibly confusing (at least for a layman like me) I ended up paying a plan administrator that worked with my brokerage for a nominal fee for the "hand holding". In my case, it was Ubiquity, they were recommended by Schwab. And they also prepare the Form 5500. If I could have done it all over again, I would have used something like Solo401k.com. Not really happy with Ubiquity either, but I largely now no longer need their support.
Did you have to use a 401k plan set up by Ubiquity? Or did you set up your own plan and Ubiquity agreed to manage it?
Topic Author
aray
Posts: 40
Joined: Mon Dec 18, 2017 9:04 am

Re: After Tax Contributions / Mega Backdoor Roth - Etrade Solo 401k

Post by aray »

According to TheFinanceBuff's research in 2015, E*Trade functions as the Custodian in its Solo 401(k) product, while some other companies providing a Solo 401(k) product, such as Vanguard and Fidelity, function as the Trustee. It's interesting if that's now changed in E*Trade's case 🤔
Etrade is the custodian and is not available to serve as trustee, so that has not changed.
The Trust and Custodial Agreement has information about this status: https://content.etrade.com/etrade/estat ... eement.pdf
Section 5 of Etrade's application also links to that form, and says "E*TRADE DOES NOT SERVE AS A TRUSTEE" as well.
User avatar
illumination
Posts: 3160
Joined: Tue Apr 02, 2019 6:13 pm

Re: After Tax 401(k) Questions - Etrade Solo 401(k)

Post by illumination »

catchinup wrote: Wed Dec 22, 2021 11:39 pm
illumination wrote: Sat Aug 21, 2021 10:08 am Just to give you my experience, I went down this road with E-Trade purely because they were about the only brokerage that had the option of a Roth 401k for a solo 401k plan. The people I talked to at E-Trade were largely clueless and gave me all sorts of contradictory information that didn't jive with some of the experts here. I ended up not going with them just because I felt the support wasn't there and was afraid of a tax nightmare. So make sure you check and re-check everything before you do this and don't rely solely on their support.

Solo Roth 401k and MegaBackDoor Roths are incredibly confusing (at least for a layman like me) I ended up paying a plan administrator that worked with my brokerage for a nominal fee for the "hand holding". In my case, it was Ubiquity, they were recommended by Schwab. And they also prepare the Form 5500. If I could have done it all over again, I would have used something like Solo401k.com. Not really happy with Ubiquity either, but I largely now no longer need their support.
Did you have to use a 401k plan set up by Ubiquity? Or did you set up your own plan and Ubiquity agreed to manage it?
It's Ubiquity's "plan" or template, but I completely self-manage it. They don't make any investment decisions, I just go into the my regular Schwab account and can buy and sell just like I could with any self-managed account. I'm basically paying their fee because Schwab's Solo 401k plan doesn't have the MegaBackdoor Option. Ubiquity prepares some paperwork at year end and provides some support. They also keep their "plan" in compliance and updated. I would say the most confusing part is just the order of operations for how to maximize a MegaBack door contribution, but once you have that figured out, you don't need their support. Its just paying a $500 toll every year for two retirement accounts because I want the MegaBackdoor option. If you have an accountant prepare your taxes, its probably cheaper than what a CPA charges to fill out these forms.

I'd probably explore another option like Solo401k.com if I could do it all over. They seemed to provide better support, but Schwab recommended Ubiquity. The two companies though don't communicate at all, so it wasn't an advantage.
catchinup
Posts: 656
Joined: Sun Dec 31, 2017 5:35 pm

Re: After Tax 401(k) Questions - Etrade Solo 401(k)

Post by catchinup »

illumination wrote: Thu Dec 23, 2021 10:31 am
catchinup wrote: Wed Dec 22, 2021 11:39 pm
illumination wrote: Sat Aug 21, 2021 10:08 am Just to give you my experience, I went down this road with E-Trade purely because they were about the only brokerage that had the option of a Roth 401k for a solo 401k plan. The people I talked to at E-Trade were largely clueless and gave me all sorts of contradictory information that didn't jive with some of the experts here. I ended up not going with them just because I felt the support wasn't there and was afraid of a tax nightmare. So make sure you check and re-check everything before you do this and don't rely solely on their support.

Solo Roth 401k and MegaBackDoor Roths are incredibly confusing (at least for a layman like me) I ended up paying a plan administrator that worked with my brokerage for a nominal fee for the "hand holding". In my case, it was Ubiquity, they were recommended by Schwab. And they also prepare the Form 5500. If I could have done it all over again, I would have used something like Solo401k.com. Not really happy with Ubiquity either, but I largely now no longer need their support.
Did you have to use a 401k plan set up by Ubiquity? Or did you set up your own plan and Ubiquity agreed to manage it?
It's Ubiquity's "plan" or template, but I completely self-manage it. They don't make any investment decisions, I just go into the my regular Schwab account and can buy and sell just like I could with any self-managed account. I'm basically paying their fee because Schwab's Solo 401k plan doesn't have the MegaBackdoor Option. Ubiquity prepares some paperwork at year end and provides some support. They also keep their "plan" in compliance and updated. I would say the most confusing part is just the order of operations for how to maximize a MegaBack door contribution, but once you have that figured out, you don't need their support. Its just paying a $500 toll every year for two retirement accounts because I want the MegaBackdoor option. If you have an accountant prepare your taxes, its probably cheaper than what a CPA charges to fill out these forms.

I'd probably explore another option like Solo401k.com if I could do it all over. They seemed to provide better support, but Schwab recommended Ubiquity. The two companies though don't communicate at all, so it wasn't an advantage.
I see. I got my plan thru one of those other options you my mentioned and set my plan up at Fidelity. I do everything myself. I have a separate account for my after tax contributions and I distribute them into a Roth. This means I (with my 401k administrator hat on) file a 1099-R each year to myself. I also file the annual 401k tax return. I don't think many general CPAs have experience or proficiency in 401k administration and IRS rules surrounding Mega back door Roths (at least I haven't found one.). If all you pay is $500 annual, that seems well worth it to me to have the peace of mind of knowing things are being done properly.
lazerasa
Posts: 5
Joined: Tue Jul 23, 2013 4:39 pm

Re: After Tax Contributions / Mega Backdoor Roth - Etrade Solo 401k

Post by lazerasa »

dublin wrote: Wed Dec 22, 2021 8:43 pm
tay wrote: Wed Dec 22, 2021 8:36 pm Thank you @aray, @dublin. MBDR here I come!
Awesome - the last piece of advice I'd give you is that it took me a number of phone calls over a couple of weeks to get all of the new accounts properly squared away at Etrade, connected to my existing Etrade login, etc - so don't be dissuaded if it's a bit of a bumpy ride getting everything set up! Now that it's done, it's smooth as butter, and the Etrade reps I've chatted with along the way have been stellar - knowledgeable and helpful, and happy to follow up.

Good luck, and welcome to the club!
Since I already have an individual 401k with Etrade, I am very interested in the MBD Roth possibility, but I'm a little confused by the IN-PLAN ROTH ROLLOVERS section (3.09) of the Etrade plan description document (https://content.etrade.com/etrade/estat ... ooklet.pdf). I'm assuming this is what they call the Roth conversion process. It doesn't explicitly mention the ability to convert after-tax ("Nondeductible Employee Contributions") to Roth, so are we sure it is allowed, or is it only referring to the ability to convert pre-tax money to into Roth?

Additionally, section B ("Separate Accounting") confuses me. It sounds like it's saying that a separate Roth 401k account would be required in order to hold any Roth conversions (in addition to a Roth 401k account that you contribute employee elective deferrals into)? Or can they be co-mingled in one account?

When you moved your after-tax contributions into Roth, did you have to submit any forms to Etrade? I see a "Direct In-Plan Roth Rollover Request Form" listed on this page: https://us.etrade.com/forms-applications

Also, I'm interested in hearing if they get everything correct on your 1099 forms. Thank you all for leading the way and providing all the details!
User avatar
retiredjg
Posts: 53989
Joined: Thu Jan 10, 2008 11:56 am

Re: After Tax Contributions / Mega Backdoor Roth - Etrade Solo 401k

Post by retiredjg »

I'll just mention lazerasa, since you are new and have may not have seen previous discussions...it can be risky to try to administer your own Solo 401k with mega-backdoor if you do not have previous experience in this area.

Some people are doing it but it is likely just a matter of time before someone messes up their retirement savings and pays the price. Consider if you should hire a third party administrator (TPA) for this service, at least for a few years until you understand the details more.

If you have not seen it, here is a Wiki page that contains some information on the subject. Note the caution given.

https://www.bogleheads.org/wiki/Mega-backdoor_Roth
lazerasa
Posts: 5
Joined: Tue Jul 23, 2013 4:39 pm

Re: After Tax Contributions / Mega Backdoor Roth - Etrade Solo 401k

Post by lazerasa »

retiredjg wrote: Thu Jan 20, 2022 2:27 pm I'll just mention lazerasa, since you are new and have may not have seen previous discussions...it can be risky to try to administer your own Solo 401k with mega-backdoor if you do not have previous experience in this area.

Some people are doing it but it is likely just a matter of time before someone messes up their retirement savings and pays the price. Consider if you should hire a third party administrator (TPA) for this service, at least for a few years until you understand the details more.

If you have not seen it, here is a Wiki page that contains some information on the subject. Note the caution given.

https://www.bogleheads.org/wiki/Mega-backdoor_Roth
Thank you for the note, and yes I have read a great deal about this topic already.

I have used a TPA (Ubiquity) in the past for a "standard" 401k (up until a few years ago), but I was not trying to do a mega-backdoor at that point in time. Unless I am missing something, all the TPA does is provide the plan documents (i.e. adoption agreement, basic plan document, summary plan description, etc) and generate/file the 5500-EZ and 1099-R forms.

Either Etrade's plan documents have the necessary features to allow MBD, or they don't. I think that's what we're all trying to understand. As far as filing the forms, I already have experience with doing them on my own if needed.
User avatar
retiredjg
Posts: 53989
Joined: Thu Jan 10, 2008 11:56 am

Re: After Tax Contributions / Mega Backdoor Roth - Etrade Solo 401k

Post by retiredjg »

lazerasa wrote: Thu Jan 20, 2022 2:52 pm Unless I am missing something, all the TPA does is provide the plan documents (i.e. adoption agreement, basic plan document, summary plan description, etc) and generate/file the 5500-EZ and 1099-R forms.
Not exactly although it may seem that way. There can be a difference between who supplies the documents and who administers the plan. If I understand eTrade's plan correctly, it can be set up to use the MBD (they supply the documents) but I do not believe they administer the plan.

You may be perfectly ready and able to be the plan administrator yourself - I don't know. What I'm saying is that I do not believe that eTrade does that for you and there is more to it than a Solo 401k without the MBD.
dublin
Posts: 266
Joined: Sun Aug 28, 2011 2:12 pm

Re: After Tax Contributions / Mega Backdoor Roth - Etrade Solo 401k

Post by dublin »

lazerasa wrote: Thu Jan 20, 2022 2:12 pm
dublin wrote: Wed Dec 22, 2021 8:43 pm
tay wrote: Wed Dec 22, 2021 8:36 pm Thank you @aray, @dublin. MBDR here I come!
Awesome - the last piece of advice I'd give you is that it took me a number of phone calls over a couple of weeks to get all of the new accounts properly squared away at Etrade, connected to my existing Etrade login, etc - so don't be dissuaded if it's a bit of a bumpy ride getting everything set up! Now that it's done, it's smooth as butter, and the Etrade reps I've chatted with along the way have been stellar - knowledgeable and helpful, and happy to follow up.

Good luck, and welcome to the club!
Since I already have an individual 401k with Etrade, I am very interested in the MBD Roth possibility, but I'm a little confused by the IN-PLAN ROTH ROLLOVERS section (3.09) of the Etrade plan description document (https://content.etrade.com/etrade/estat ... ooklet.pdf). I'm assuming this is what they call the Roth conversion process. It doesn't explicitly mention the ability to convert after-tax ("Nondeductible Employee Contributions") to Roth, so are we sure it is allowed, or is it only referring to the ability to convert pre-tax money to into Roth?

Additionally, section B ("Separate Accounting") confuses me. It sounds like it's saying that a separate Roth 401k account would be required in order to hold any Roth conversions (in addition to a Roth 401k account that you contribute employee elective deferrals into)? Or can they be co-mingled in one account?

When you moved your after-tax contributions into Roth, did you have to submit any forms to Etrade? I see a "Direct In-Plan Roth Rollover Request Form" listed on this page: https://us.etrade.com/forms-applications

Also, I'm interested in hearing if they get everything correct on your 1099 forms. Thank you all for leading the way and providing all the details!
Very timely question - the 1099-R arrived in my account just this morning, and it's correct. :beer It shows the amount I IRR'd in box 1, and $0 in box 2a, meaning no portion of the rollover was taxable (because it came from non-deductible contributions).

In answer to the rest of your post, yes, it's definitely allowed as I've done it successfully.

I did submit a form electronically to initiate the IRR (I think the one you mentioned) and it was done within a few days.

I only have the one Roth i401k account; I happen to not have any other Roth funds in this Solo 401k plan, but I think another poster above in the thread confirmed that you don't need a separate Roth account for IRRs even if you do have regular Roth funds too, only a separate Traditional account for the after-tax contributions. So I have 3 total i401k accounts, Trad 1 (regular pre-tax), Trad 2 (which I'm using for after-tax), and Roth.
lazerasa
Posts: 5
Joined: Tue Jul 23, 2013 4:39 pm

Re: After Tax Contributions / Mega Backdoor Roth - Etrade Solo 401k

Post by lazerasa »

dublin wrote: Fri Jan 21, 2022 1:13 pm
lazerasa wrote: Thu Jan 20, 2022 2:12 pm
dublin wrote: Wed Dec 22, 2021 8:43 pm
tay wrote: Wed Dec 22, 2021 8:36 pm Thank you @aray, @dublin. MBDR here I come!
Awesome - the last piece of advice I'd give you is that it took me a number of phone calls over a couple of weeks to get all of the new accounts properly squared away at Etrade, connected to my existing Etrade login, etc - so don't be dissuaded if it's a bit of a bumpy ride getting everything set up! Now that it's done, it's smooth as butter, and the Etrade reps I've chatted with along the way have been stellar - knowledgeable and helpful, and happy to follow up.

Good luck, and welcome to the club!
Since I already have an individual 401k with Etrade, I am very interested in the MBD Roth possibility, but I'm a little confused by the IN-PLAN ROTH ROLLOVERS section (3.09) of the Etrade plan description document (https://content.etrade.com/etrade/estat ... ooklet.pdf). I'm assuming this is what they call the Roth conversion process. It doesn't explicitly mention the ability to convert after-tax ("Nondeductible Employee Contributions") to Roth, so are we sure it is allowed, or is it only referring to the ability to convert pre-tax money to into Roth?

Additionally, section B ("Separate Accounting") confuses me. It sounds like it's saying that a separate Roth 401k account would be required in order to hold any Roth conversions (in addition to a Roth 401k account that you contribute employee elective deferrals into)? Or can they be co-mingled in one account?

When you moved your after-tax contributions into Roth, did you have to submit any forms to Etrade? I see a "Direct In-Plan Roth Rollover Request Form" listed on this page: https://us.etrade.com/forms-applications

Also, I'm interested in hearing if they get everything correct on your 1099 forms. Thank you all for leading the way and providing all the details!
Very timely question - the 1099-R arrived in my account just this morning, and it's correct. :beer It shows the amount I IRR'd in box 1, and $0 in box 2a, meaning no portion of the rollover was taxable (because it came from non-deductible contributions).

In answer to the rest of your post, yes, it's definitely allowed as I've done it successfully.

I did submit a form electronically to initiate the IRR (I think the one you mentioned) and it was done within a few days.

I only have the one Roth i401k account; I happen to not have any other Roth funds in this Solo 401k plan, but I think another poster above in the thread confirmed that you don't need a separate Roth account for IRRs even if you do have regular Roth funds too, only a separate Traditional account for the after-tax contributions. So I have 3 total i401k accounts, Trad 1 (regular pre-tax), Trad 2 (which I'm using for after-tax), and Roth.
Thank you for the update and answers! It sounds like a viable option if one is comfortable handling all of the accounting/administration/recordkeeping.
fyre4ce
Posts: 2538
Joined: Sun Aug 06, 2017 11:29 am

Re: After Tax Contributions / Mega Backdoor Roth - Etrade Solo 401k

Post by fyre4ce »

dublin wrote: Fri Jan 21, 2022 1:13 pm
lazerasa wrote: Thu Jan 20, 2022 2:12 pm
dublin wrote: Wed Dec 22, 2021 8:43 pm
tay wrote: Wed Dec 22, 2021 8:36 pm Thank you @aray, @dublin. MBDR here I come!
Awesome - the last piece of advice I'd give you is that it took me a number of phone calls over a couple of weeks to get all of the new accounts properly squared away at Etrade, connected to my existing Etrade login, etc - so don't be dissuaded if it's a bit of a bumpy ride getting everything set up! Now that it's done, it's smooth as butter, and the Etrade reps I've chatted with along the way have been stellar - knowledgeable and helpful, and happy to follow up.

Good luck, and welcome to the club!
Since I already have an individual 401k with Etrade, I am very interested in the MBD Roth possibility, but I'm a little confused by the IN-PLAN ROTH ROLLOVERS section (3.09) of the Etrade plan description document (https://content.etrade.com/etrade/estat ... ooklet.pdf). I'm assuming this is what they call the Roth conversion process. It doesn't explicitly mention the ability to convert after-tax ("Nondeductible Employee Contributions") to Roth, so are we sure it is allowed, or is it only referring to the ability to convert pre-tax money to into Roth?

Additionally, section B ("Separate Accounting") confuses me. It sounds like it's saying that a separate Roth 401k account would be required in order to hold any Roth conversions (in addition to a Roth 401k account that you contribute employee elective deferrals into)? Or can they be co-mingled in one account?

When you moved your after-tax contributions into Roth, did you have to submit any forms to Etrade? I see a "Direct In-Plan Roth Rollover Request Form" listed on this page: https://us.etrade.com/forms-applications

Also, I'm interested in hearing if they get everything correct on your 1099 forms. Thank you all for leading the way and providing all the details!
Very timely question - the 1099-R arrived in my account just this morning, and it's correct. :beer It shows the amount I IRR'd in box 1, and $0 in box 2a, meaning no portion of the rollover was taxable (because it came from non-deductible contributions).

In answer to the rest of your post, yes, it's definitely allowed as I've done it successfully.

I did submit a form electronically to initiate the IRR (I think the one you mentioned) and it was done within a few days.

I only have the one Roth i401k account; I happen to not have any other Roth funds in this Solo 401k plan, but I think another poster above in the thread confirmed that you don't need a separate Roth account for IRRs even if you do have regular Roth funds too, only a separate Traditional account for the after-tax contributions. So I have 3 total i401k accounts, Trad 1 (regular pre-tax), Trad 2 (which I'm using for after-tax), and Roth.
dublin,

I'm very interested in setting this up for 2022, and I just got off the phone with ETrade. The guy I spoke with seemed familiar with setting up a nondeductible employee contribution account and walked me through the forms on their website necessary to set it up. He also told me where to go to roll the money over into the Roth subaccount. All sounded awesome, and gave me confidence. I asked about the 1099-R, and this is the only area that gave me pause. He said that both box 1 and box 2a would contain the entire amount of the rollover, and box 2b ("taxable amount not determined") would be checked. This seems to contradict the instructions which say there should be an amount in 2b OR the box should be checked. I'll assume he misspoke and meant that box 2a would be blank but box 2b would be checked.

I would rather ETrade keeps track of the basis and calculates the taxable amount than me. I can do it, but I'm just worried about raising suspicion. I know for non-deductible IRA withdrawals there is Form 8606 which is attached to one's personal tax return and keeps track of the basis. How does one track and report the basis of a nondeductible 401k contribution?

In any case, if your 1099-R showed a taxable amount of $0 (I assume this is correct, as in you did the rollover immediately after contribution so you had no taxable growth), that's a good sign. Maybe the rep I spoke with was also wrong that they don't track the basis. Were all the other boxes and codes on your 1099-R correct?
dublin
Posts: 266
Joined: Sun Aug 28, 2011 2:12 pm

Re: After Tax Contributions / Mega Backdoor Roth - Etrade Solo 401k

Post by dublin »

fyre4ce wrote: Tue Jan 25, 2022 12:43 pm
dublin wrote: Fri Jan 21, 2022 1:13 pm
lazerasa wrote: Thu Jan 20, 2022 2:12 pm
dublin wrote: Wed Dec 22, 2021 8:43 pm
tay wrote: Wed Dec 22, 2021 8:36 pm Thank you @aray, @dublin. MBDR here I come!
Awesome - the last piece of advice I'd give you is that it took me a number of phone calls over a couple of weeks to get all of the new accounts properly squared away at Etrade, connected to my existing Etrade login, etc - so don't be dissuaded if it's a bit of a bumpy ride getting everything set up! Now that it's done, it's smooth as butter, and the Etrade reps I've chatted with along the way have been stellar - knowledgeable and helpful, and happy to follow up.

Good luck, and welcome to the club!
Since I already have an individual 401k with Etrade, I am very interested in the MBD Roth possibility, but I'm a little confused by the IN-PLAN ROTH ROLLOVERS section (3.09) of the Etrade plan description document (https://content.etrade.com/etrade/estat ... ooklet.pdf). I'm assuming this is what they call the Roth conversion process. It doesn't explicitly mention the ability to convert after-tax ("Nondeductible Employee Contributions") to Roth, so are we sure it is allowed, or is it only referring to the ability to convert pre-tax money to into Roth?

Additionally, section B ("Separate Accounting") confuses me. It sounds like it's saying that a separate Roth 401k account would be required in order to hold any Roth conversions (in addition to a Roth 401k account that you contribute employee elective deferrals into)? Or can they be co-mingled in one account?

When you moved your after-tax contributions into Roth, did you have to submit any forms to Etrade? I see a "Direct In-Plan Roth Rollover Request Form" listed on this page: https://us.etrade.com/forms-applications

Also, I'm interested in hearing if they get everything correct on your 1099 forms. Thank you all for leading the way and providing all the details!
Very timely question - the 1099-R arrived in my account just this morning, and it's correct. :beer It shows the amount I IRR'd in box 1, and $0 in box 2a, meaning no portion of the rollover was taxable (because it came from non-deductible contributions).

In answer to the rest of your post, yes, it's definitely allowed as I've done it successfully.

I did submit a form electronically to initiate the IRR (I think the one you mentioned) and it was done within a few days.

I only have the one Roth i401k account; I happen to not have any other Roth funds in this Solo 401k plan, but I think another poster above in the thread confirmed that you don't need a separate Roth account for IRRs even if you do have regular Roth funds too, only a separate Traditional account for the after-tax contributions. So I have 3 total i401k accounts, Trad 1 (regular pre-tax), Trad 2 (which I'm using for after-tax), and Roth.
dublin,

I'm very interested in setting this up for 2022, and I just got off the phone with ETrade. The guy I spoke with seemed familiar with setting up a nondeductible employee contribution account and walked me through the forms on their website necessary to set it up. He also told me where to go to roll the money over into the Roth subaccount. All sounded awesome, and gave me confidence. I asked about the 1099-R, and this is the only area that gave me pause. He said that both box 1 and box 2a would contain the entire amount of the rollover, and box 2b ("taxable amount not determined") would be checked. This seems to contradict the instructions which say there should be an amount in 2b OR the box should be checked. I'll assume he misspoke and meant that box 2a would be blank but box 2b would be checked.

I would rather ETrade keeps track of the basis and calculates the taxable amount than me. I can do it, but I'm just worried about raising suspicion. I know for non-deductible IRA withdrawals there is Form 8606 which is attached to one's personal tax return and keeps track of the basis. How does one track and report the basis of a nondeductible 401k contribution?

In any case, if your 1099-R showed a taxable amount of $0 (I assume this is correct, as in you did the rollover immediately after contribution so you had no taxable growth), that's a good sign. Maybe the rep I spoke with was also wrong that they don't track the basis. Were all the other boxes and codes on your 1099-R correct?
Yeah, happy to report that based on my experience, the rep you spoke with was incorrect regarding the 1099-R. On my 1099-R, box 1 shows the full amount of my non-deductible contribution (which I immediately rolled over to the Roth sub-account, with no earnings on top of the contributed amount), box 2a shows a taxable amount of $0.00 (which is correct), and box 2b is NOT checked (meaning the taxable amount IS determined). The only other item on the 1099-R is box 7, which has the correct code of 'G'.

So yes, looks like they nailed it.
dublin
Posts: 266
Joined: Sun Aug 28, 2011 2:12 pm

Re: After Tax Contributions / Mega Backdoor Roth - Etrade Solo 401k

Post by dublin »

dublin wrote: Wed Jan 26, 2022 3:17 pm
Yeah, happy to report that based on my experience, the rep you spoke with was incorrect regarding the 1099-R. On my 1099-R, box 1 shows the full amount of my non-deductible contribution (which I immediately rolled over to the Roth sub-account, with no earnings on top of the contributed amount), box 2a shows a taxable amount of $0.00 (which is correct), and box 2b is NOT checked (meaning the taxable amount IS determined). The only other item on the 1099-R is box 7, which has the correct code of 'G'.

So yes, looks like they nailed it.
I spoke a bit too soon :oops:

A forum member DMed me to let me know that E-Trade missed one thing - they left box 5 blank, whereas it should have shown the same amount as box 1.

I called E-Trade to ask for a corrected 1099-R, and their tax department got back to me saying that they don't fill out that box for 401k plans, and rather it is up to the client to self-report.

Now, based on some research, it looks like I wouldn't enter the information from Box 5 anywhere on my tax return anyway, so given boxes 1, 2a and 7 are correct, I'm not sure if it matters? If so, not sure what I can/should do about it.
Soon2BXProgrammer
Posts: 3289
Joined: Mon Nov 24, 2014 10:30 pm

Re: After Tax Contributions / Mega Backdoor Roth - Etrade Solo 401k

Post by Soon2BXProgrammer »

dublin wrote: Tue Feb 08, 2022 9:28 pm
dublin wrote: Wed Jan 26, 2022 3:17 pm
Yeah, happy to report that based on my experience, the rep you spoke with was incorrect regarding the 1099-R. On my 1099-R, box 1 shows the full amount of my non-deductible contribution (which I immediately rolled over to the Roth sub-account, with no earnings on top of the contributed amount), box 2a shows a taxable amount of $0.00 (which is correct), and box 2b is NOT checked (meaning the taxable amount IS determined). The only other item on the 1099-R is box 7, which has the correct code of 'G'.

So yes, looks like they nailed it.
I spoke a bit too soon :oops:

A forum member DMed me to let me know that E-Trade missed one thing - they left box 5 blank, whereas it should have shown the same amount as box 1.

I called E-Trade to ask for a corrected 1099-R, and their tax department got back to me saying that they don't fill out that box for 401k plans, and rather it is up to the client to self-report.

Now, based on some research, it looks like I wouldn't enter the information from Box 5 anywhere on my tax return anyway, so given boxes 1, 2a and 7 are correct, I'm not sure if it matters? If so, not sure what I can/should do about it.
Help me understand what you think should be in box 5?
Earned 43 (and counting) credit hours of financial planning related education from a regionally accredited university, but I am not your advisor.
Post Reply