Early withdrawal from Roth after 529 conversion - Taxable?

Forum|Forum|6 months ago
April 4, 2026
2 replies
647 views

Isn't this supposed to be tax/penalty free? I converted $7000 from 529 to Roth IRA in 2024 and again in 2025. I followed the secure act rules making this tax free/penalty free. So had $14,000 in Roth (plus interest that accumulated in 2025). I did $14,000 early withdrawal from Roth later in 2025 (I left the small amount of 2025 interest accumulated in the Roth so I wouldn't have to pay penalty/taxes on the earnings). 1099-R form correctly shows $14,000 gross distribution (box 1). Taxable amount is unfortunately blank (box 2). Taxable amount not determined box is checked (box 2a). Distribution code is listed as J (box 7). So when 1099-R is entered in TurboTax, it considers all $14,000 as taxable. It asks me about other situations such as did I use to by home, etc but none of those apply. But I still should not be taxed/penalized on the contribution amount.

1) Is all $14,000 considered my contribution/principle (since that was the total amount converted from 529 to Roth) or do I still pay taxes/penalty on the previous 529 earnings that were converted to the Roth (it doesn't "reset"?)?

2) Turbo tax does not ask about how much of this was principle (which is tax free/penalty free) so charging me taxes/penalty on the full $14,000. How do I correct this?

Thanks!

TurboTax Business Windows

Troy_H

Level 2

Until TT fixes the root issue, what I did was go to IRA Contrib Wks Form and on Line 19, update the amount to $0 with a note that no regular contributions were made. In the QTP-to-Roth Rollover limit Smart Worksheet, this changed lines e (ex. QTP to Roth) and i (ATP to Roth rollover in excess of limit) to $0 as they should be and correctly updated lines 23, 24 & 27 to $0.

This has removed the 529 to Roth amount from taxable income.

RobertB4444

Alumni - Intuit

The problem with your 1099-R is the code in box 7. Code J indicates that the withdrawal is an early withdrawal that is subject to penalties. The basis is still not taxable so you should be entering zero in box 2 because even though the broker has refused to calculate the amount that is taxable you have so enter zero there for them.

That will make the 14,000 not taxable but there will still be a penalty for an early withdrawal assessed for taking the money out early. If you believe that you should not be assessed that penalty then you need to contact the institution that manages your account and request a corrected 1099-R that does not show an early withdrawal.

@user17752874295

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