Yes, CA taxes the income but under the rules of a ROTH. Here are the reporting requirements. In 2024 Instructions for Schedule CA (540) | FTB.ca.gov states: Special Rules for Certain Distributions from Qualified IRC Section 529 Tuition Plans – The federal Consolidated Appropriations Act (CAA), 2023, allows qualified Internal Revenue Code (IRC) Section 529 tuition plans that have been maintained for 15 years to rollover to a Roth Individual Retirement Arrangement (IRA) without a tax or penalty. Under the federal law, rollover distributions from an IRC Section 529 plan to a Roth IRA after December 31, 2023, will be treated in the same manner as the earnings and contributions of a Roth IRA. California law does not conform to this federal provision. Rollover distribution from an IRC Section 529 plan to a Roth IRA is includible in California taxable income and subject to an additional tax of 2½%. For more information, see Schedule CA (540) specific line instructions in Part I, Section B, line 8z.
**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
