I've been very frustrated with the Turbo Tax NY state program with regard to 529s. It is very user unfriendly and not helpful with clearly asking/explaining what to enter (at least for me). Just feedback on something that could be looked at for future versions of Turbo Tax's New York add on.
My situation is this. I withdrew funds from my NY 529 and rolled over to my Illinois 529. My understanding is that this is a nonqualified distribution. Turbo Tax asks for the amount of the nonqualified distribution but doesn't clarify if it is box 1 (gross distribution) or box 2 (earnings) from the 1099-Q. Common sense would suggest that it I should just enter the earnings so I am not taxed on the basis but if I do this, Turbo Tax says I don't owe any NY state income tax at the end and that doesn't make sense to me. I am a non-resident of NY with no other income from that state and received no past tax benefit for the contributions from New York to recapture. Any help would be greatly appreciated.
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Earnings are the taxable distribution plus recapture of any previous amounts claimed. NY states you must file a nonresident return if:
You are a nonresident with New York source income and your New York adjusted gross income Federal amount column (Form IT-203, line 31) exceeds your New York standard deduction.
Your earnings may be less than the standard deduction so you have no taxable income.
I was glad to see 2024 update to NY 529 plan. It is better and page 86 states:
B. Penalties and Fees: I understand and agree that if I make a Federal Nonqualified Withdrawal, I may be subject to the Federal Penalty on the earnings portion of that withdrawal and that the Federal Penalty will be payable in addition to, and along with, my federal income tax for the year of the Federal Nonqualified Withdrawal. I understand and agree that if I make a New York Nonqualified Withdrawal, I may be subject to the recapture of any New York State tax benefits that had accrued on contributions to my Account. In addition, I understand and agree that I may be subject to other fees, charges, or penalties in the future, as described in the Disclosure Booklet.
I understand that a full or partial rollover of my Account to a non-New York Qualified Tuition Program or a full or partial rollover of my Account to a Qualified ABLE Program that does not meet the requirements of an ABLE Rollover Distribution would be subject to New York State taxes on earnings as well as the recapture of all previous New York State tax deductions taken for contributions to the Account.
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