Question: How do I have the earnings correctly excluded from a QTP to QTP rollover on the Alabama state form? Is this a software bug?
Problem: The Alabama state form is including the earnings as income from the 1099-Q reported on the federal return of a Trust to Trustee transfer rollover of an out of state plan to the Alabama state plan. The earning is not being included/taxed on the federal form (correctly) but the Alabama state form is adding and taxing the earning (incorrectly). The state form doesn't allow me to tell it that it was a QTP to QTP rollover, which is not supposed to be taxed by Alabama per their rules.
What I did when entering the 1099-Q on the Federal Return:
I rolled over an out of state 529 plan to an Alabama 529 plan (CollegeCounts 529) as a Trustee to Trustee transfer. I entered the resulting 1099-Q into Tubotax federal with box4 checked (trustee-to-trustee), box5 checked (distribution is from QTP State), and box6 checked (recipient is not designated beneficiary).
I answered the interview questions as follows: I am the recipient (as on the 1099-Q), this distribution was not used to pay any education expenses, no death or being disabled of beneficiary, and the Entire amount was rolled over to the original beneficiary of the new account with no other rollovers within 12 months.
