529 rollover to Roth and California taxes

[lizza]

I'd like to roll unused 529 funds to my son's Roth IRA.  The plan is in California, but my son lives and pays taxes in NY.  Will the fact that California considers this a non qualified distribution subject to taxes apply?

[Hal_Al]

Q. Will the fact that California considers this (a 529 rollover to a Roth IRA) a non qualified distribution subject him to state income tax?

A. No. The fact that the plan is in CA is not relevant.  But the fact that New York also considers a 529 rollover to a Roth IRA as a non qualified distribution will subject  him to NY state income tax.

So far, "There are 21 states that have said that they will follow federal law: Alabama, Arizona, Delaware, Georgia, Hawaii, Idaho, Kansas, Kentucky, Maine, Maryland, Nebraska, New Mexico, North Carolina, North Dakota, Ohio, Oregon, Pennsylvania, South Carolina, Virginia, West Virginia and Wisconsin." Someone living in those states would not be subject to state income tax, even if it was a California based 529 plan. 

Reference: https://irahelp.com/slottreport/are-529-to-roth-ira-rollovers-subject-to-state-tax/

[lizza]

thank you for the quick reply

[taxmacometh]

So - if one lives in one of these states like CA and NY that doesnt yet conform to federal law, then how do you enter your 1099-Q in turbotax so that state tax will be taken out, but not federal tax?

[AmyC]

It depends on the state. CA asks for it to be reported as an adjustment. In CA, follow these steps:

1. go to here's the income that California handles differently. 
2. Scroll down to the Miscellaneous section. 
3. Select the expanded use of 529. 
4. Answer the elementary school question  
5. The next will ask for the excluded income from federal. Enter the taxable portion only.