Q. Will there be further updates on this from Turbotax?
A. Yes, they will announce it in any updates and I plan to post to this particular discussion, when they notify me.
Q. I am concerned about receiving an IRS notice for this later since it will appear as unreported income.
A. No. You are no more likely to hear from the IRS if you don't enter the 1099-Q. It's just the opposite, if you enter the 1099-Q, you're more likely to make a mistake that will trigger a flag.
References:
- On form 1099-Q, instructions to the recipient reads: "Nontaxable distributions from CESAs and QTPs are not required to be reported on your income tax return. You must determine the taxability of any distribution."
- IRS Pub 970 states: “Generally, distributions are tax free if they aren't more than the beneficiary's AQEE for the year. Don't report tax-free distributions (including qualifying rollovers) on your tax return”.
I was somewhat surprised to hear that Fidelity doesn't send the 1099-Q to the IRS, when they know the distribution is qualified.
