Federal Tax - My understanding is that there is no need to report the information on my 1099-Q which shows the trustee-to-trustee transfer for the rollover of my son's 529 to his Roth. The rollover complies with all of the requirements. I assume that there is no entry required in TT for this 1099-Q.
California - CA does not comply with the Federal law for 529 to Roth rollovers. TT offers the opportunity to enter the distribution amount near the end of the step-by-step interview when a 529 distribution is used for this purpose. However, it specifies to enter the distribution amount, suggesting the entire distribution amount ($7,000 in my son's case). This seems incorrect, as I assume that CA should treat the distribution as a non-qualified distribution which would mean that one only need enter the earnings portion of the distribution, as only the earnings should be subject to income tax and to the related 2.5% non-qualified withdrawal penalty. For example, if my son had taken a non-qualified distribution of $7,000, only the earnings would have been subject to the tax and penalty (although the Federal return would have been affected by doing so).
Does anyone have any clarity on my situation? Does a TurboTax professional have any advice?
I'll probably reach out to the FTB on this, but CA is a mess from a taxes standpoint...
