Why are the earnings portion of my 1099-Q considered taxable income for my 2024 529 plan rollover to a Roth IRA? 1099-Q data is correct.

[ricejosh2001]

1099-Q block 4 is checked as "Trustee-to-Trustee." Block 6 is left unchecked -- son is designated beneficiary. Rollover meets all IRS requirements.

[KrisD15]

If it was properly rolled-over, simply do not enter that 1099-Q.

According to the IRS:

• “A Roth IRA for the benefit of the same beneficiary, if the distribution is a direct trustee-to-trustee transfer from a QTP account that has been open for more than 15 years and the amount distributed does not exceed total contributions (and attributable earnings) made to the QTP more than 5 years before the distribution date. However, this doesn't apply to the extent the amount distributed when added to other amounts contributed to Roth IRAs exceeds the annual contribution limit. For more information about contributions to Roth IRAs, see Pub. 590-A.”
• “Don't report qualifying rollovers (those that meet the above criteria) anywhere on Form 1040, 1040-SR, or 1040-NR. These aren't taxable distributions.”

[ricejosh2001]

I agree to the extent that all eligibility requirements being met, receipt of proper 1099-Q, and non-taxable requirement.  But, my hesitation is that Vanguard has sent the 1099-Q to the IRS and will trigger a flag in absence of clarifying details on my part. 

I just wished that Turbo Tax would create the proper matrix to enable the ability to properly document the qualified distribution for those who share my concerns to allay any IRS red flags/audits.  Turbo Tax should be able to create the updates to their software.

BTW, I have submitted a question to IRS for clarification.  Hopefully, the IRS will respond... not holding my breath.

[AmyC]

The program must comply with IRS requirements. It is either reported and taxable or partially taxable or it is not reported. The IRS requires you to keep the form in your tax file. 

[ricejosh2001]

In absence of TT updating its 1099-Q interview questions relative to SECURE 2.0 Act qualified 529 plan to Roth IRA trustee-to-trustee transfer, I plan to "manipulate" the TT interview questions to reflect the correct 1099-Q I received from Vanguard -- Block 4: checked; Block 6: unchecked. I believe this will do the trick, since the TT worksheet will not follow my Tax Return to the IRS.  And, a Vanguard 2024 Form 5498 (IRA Contribution Information) will follow to IRS once generated in the May 2025 timeframe.

[sammykud]

There are no income limits to the QTP to Roth. How do I get turbotax to not flag and categorize it as "excess contributions"? It calculates a 6% penalty, but I am expected to reverse the contribution. Suggestions on how to get turbotax to accept it as allowable--which it is.

Thanks

[AmyC]

If the form is not taxable, it should not be entered. The program assumes you have a tax liability. The IRS clearly states not to enter the form if none of it is taxable, as noted above by @KrisD15 . The IRS does require you to keep the form with your tax records.  

Reference:   IRS Publication 970, Tax Benefits for Education 

@sammykud 

[catonyx]

This seems like a glaring bug in TurboTax. It is a contradiction to the questions it asks. If I have a form, I should be able to enter it and have the proper questions such that the program can ignore it if that is the right answer. This has been a huge time waster where I pay for TurboTax to make it easier, not a quest for answers to whatever it missing. I have used it for a long time and generally it is pretty good but this is the stuff that just is plain waste of time to probably hundreds or thousands of people.

[geo1]

@AmyC , @KrisD15 If IRS instructions are that the form doesn't need to be entered, then the turbotax software should say so.  The interview questions don't indicate this.

It is a frustrating dodge putting responsibility on the user to work around the turbotax interview by ignoring prompts for entries without giving the user some direction on when/why it is appropriate to do (really the software should take the entries and then decide since that is the purpose of having tax software).

Only after seeing it listed as taxable did I go searching to see this.  Had I not thought it odd I would be on the hook for the difference.  

Let's not sugar coat this, this is a bug  and should be fixed.