TurboTax is charging me tax on a qualified 529 to Roth Distribution, Any ideas how to adjust? The distribution meets the IRS requirements for tax free, penalty free.

[KrisD15]

To enter a 529 Savings Account Rollover to Roth using TurboTax Tax Year 2025

Be sure to enter your income first. Contributing to a Roth Account, including Rollovers, requires meeting the general rules and limits of a yearly Roth Contribution. This means you must have earned income in the amount of, or higher, than the 529 to Roth rollover.

• Go to the Federal Taxes Section of TurboTax
  Wages & Income
  Less Common Income
  Miscellaneous Income, 1099-A, 1099-C   START or UPDATE
  Scroll down and select “ESA and 529 Distributions (Form 1099-Q)    START or UPDATE
• Form 1099-Q   “Did you receive a Form 1099-Q for qualified tuition program distributions in 2025?”
  Yes      Continue
  1099-Q distribution   “Who received the 1099-Q distribution?”
  Taxpayer    or Dependent (SELECT THE BENEFICIARY of the 529 account, NOT THE OWNER)   Continue
  Designated beneficiary for this 1099-Q   “Tell us the student whose education expenses were paid by the distribution reported on this 1099-Q” 
  Taxpayer or Dependent (SELECT THE BENEFICIARY of the 529 account, NOT THE OWNER)  Continue
• Enter Form 1099-Q
• Distribution code should be “Distributions”
  Continue
• Distribution information   “Enter the distribution amounts as shown on Form 1099-Q. The gross distribution must equal the sum of the earnings and basis amounts” 
  Enter the amounts. If the program shows an error, the program may be rounding both earnings and basis up or down, if so, change the earnings to be one dollar higher or lower so the earnings and basis added together equals the distribution.
• 
  Other Form 1099-Q information
  Follow your 1099-Q
  Box 4a should be checked so select “Yes” for Box 4a
  Box 4b should not be checked, so select “No” for Box 4b
  Box 6, if that is checked on your 1099-Q select “Yes” if it is not checked, select “No”
• Continue
• Death or disability
  “Was this distribution received because the beneficiary dies or became disabled?”
  Select “No” to both
  Continue
• Qualified tuition program
  “What type of qualified program was the distribution made from?”
  Select Coverdell ESA
  Continue
• Coverdell ESA
  Enter the basis (the balance of YOUR contributions) before the distribution (December 31, 2024) 
  Enter any contributions made to the 529 in 2025, this most probably should be zero
  Enter the total balance of the 529 Account at the end of 2025. 
  Continue
• Return of contribution     “Was this distribution a return of contribution to a Coverdell ESA?”
  Select “Not applicable” 
  Continue
• Distribution Transfer
  Select “No”     
  Continue
• Rollover
  Select “No”
• Refund of education expenses
  Select “No”
  Continue

Form 1099-Q summary
Here you should see a list of the 1099-Q with the amount in Box 1 for the Roth transfer which should be under the limit for 2025 of 7,000 for taxpayers under age 50.

Student information summary
Here the beneficiary’s name should be listed
Select Continue

If you also have Form 1098-T or additional expenses relating to the student (BUT NOT THE 1099-Q FOR THE ROTH ROLLOVER) please go to 
Deductions & Credits
Education 
Expenses and Scholarships (Form 1098-T)    
 

[user17715594643]

I am having the exact same issue, and I have gone through this whole process with my financial advisor. We filled out the questions exactly as you have stated here, and TurboTax is still trying to qualify this as a taxable event when it should NOT be. This is a software issue, not user error.

[MarilynG1]

Since this is a rollover Roth IRA contribution, it is not entered as a contribution on your return or it will be considered taxable.   You will need to track it yourself on your Form 8606, or if the contribution is for the beneficiary, they will track it on their 8606.

@user17715594643 

[user17715594643]

I guess my situation is slightly different than the original post; I rolled funds over directly from a Coverdell ESA to a 529 account. Therefore form 8606 does not apply. I selected the box confirming that this was a direct rollover, and TurboTax is still saying I owe a ton of taxes now as a result of this 1099-Q I am trying to enter. 

[MarilynG1]

Make sure you check the 'Trustee to Trustee' option when entering your 1099-Q.  There's a question in the 1099-Q interview asking if the funds were rolled over to another qualified plan.  If using TurboTax Desktop, you can also indicate that directly on the Form 1099-Q.  

If you still get an error, you could delete Form 1099-Q and step through the interview again. 

@user17715594643 

 

[user17715594643]

Yes, I have selected “trustee-to-trustee” and I have deleted and restarted the form 5 times with the same result each time. That is why I am saying that this is a software issue, not a user error. 

[billssn]

My daughters 1099Q does NOT have 4a checked. Rather, it has 4B checked. That is causing Turbotax to throw up its arms in surrender because it doesn't know what to do.  Are you suggesting we lie about the the box checked on the 1099Q?  presumably not. Is there an ETA for when Turbot Tax will be able to deal with a 1099Q that has 4b checked?

[jdoughe786]

I am having the exact same issue...

[drosquin]

I agree - TT continues to include it as a taxable.   SW issue.

[AmyC]

Update is expected Friday so check back this weekend and update your program, if using desktop.

[billssn]

There was an update Friday but it did not address this issue...at least on the desktop version.

[domyown]

I am having the exact same issue.  First I went through the logical place to do this, and when it tried to make it taxable I deleted it.  Then I followed the instructions on the Thread EXACLY and it still reports as taxable.  So, this is NOT operator error, this is a software issue.  Hopefully it is addressed in an update in the next week or so, since this is the only thing keeping me from filing my son's return. 

[MarilynG1]

If the transfer to a Roth IRA is for the beneficiary (not you as recipient) they can report it on their own return (if required to file).  Otherwise, the Form 1099-Q and Form 5498 reporting the transfer is sufficient for your records.  You may also get a 1099-R from the 529 plan administrator showing the non-taxable transfer. 

As long as you made this as a trustee-to-trustee transfer (where the funds went directly to your Roth IRA from the 529 plan) and you did not exceed the $7,000 contribution limit, you do not need to report the transaction at all.

If the 1099-Q distribution was for qualified education expenses (excluding the Roth transfer), you're not required to report it in your return.  Here's more detailed info on Form 1099-Q.

For more details, see the highlight in IRS Pub. 970.

@billssn 

@domyown

[Edited 03/05/2026 | 9:10 am]

[user17704887788]

Dear Turbo Tax,

I cannot tell you how disappointed I am with your software and support with regards to the 529k to Roth IRA conversion being treated as a taxable item when it is simply not per the Secure Act 2.0 section 126.  You have had over a year now to fix Turbo Tax and you have failed to do so now for two tax filing seasons in a row.  At this point, you can most likely count me out for using Turbo Tax next year.