No. The ROTH contribution should be entered with earned income equal or greater than the contribution. @MarilynG1 is correct that your 1099-Q should not be entered.
For CA:
- The Adjustment: Since the rollover is tax-free federally but taxable in CA, he must add the earnings portion of the rollover to his California income.
- The Penalty: He also owes a 2.5% CA tax penalty on those earnings (since CA views this as a non-qualified withdrawal). This is on Form FTB 3805P.
- TurboTax Tip: Entering it as a "Miscellaneous Adjustment" or "Addition to Income" on the California return is the standard workaround to ensure the state gets its cut while keeping the federal return tax-free.
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