topic 1099Q on 529 rollover to Roth are gains taxed by Federal in Get your taxes done using TurboTax

1099Q on 529 rollover to Roth are gains taxed by Federal

Zoom5 — Mon, 27 Jan 2025 01:38:21 GMT

I entered the 1099q for 529 to Roth on my son's taxes in TurboTax and I see he is being taxed on the gains. Is that correct? I thought there was no Federal tax on this.

Re: 1099Q on 529 rollover to Roth are gains taxed by Federal

Hal_Al — Sun, 23 Feb 2025 18:18:53 GMT

Q. I entered the 1099q for 529 to Roth on my son's taxes in TurboTax and I see he is being taxed on the gains. Is that correct?

A. No. As you stated, there is no federal tax on a rollover to a Roth IRA.

The TurboTax interview doesn't directly cover this, yet (there is a workaround). They're working on it, but it will not be ready for this tax season.

In the mean time, I believe this statement still applies:

Just don't enter the 1099-Q in TurboTax. When the box 1 amount on form 1099-Q is fully covered by expenses, or ROLLED OVER to another qualified account (including a Roth IRA), TurboTax will enter nothing about the 1099-Q on the actual tax forms. But, it will prepare a 1099-Q worksheet for your records (the work sheet isn't going to tell you anything that will help with an IRS inquiry). You'll need to check the "trustee to trustee rollover" box at the 1099-Q screen.

On form 1099-Q, instructions to the recipient reads: "Nontaxable distributions from CESAs and QTPs are not required to be reported on your income tax return. You must determine the taxability of any distribution."

But, you need to be sure that you meet all the new rules:

$7000 yearly limit
Beneficiary must have earned income that year of at least the amount transferred
Your 529 savings account must be open for over 15 years before funds can be rolled over into a Roth IRA.
It must be a trustee to trustee rollover (the trustee to trustee rollover box will be checked on the 1099-Q)
the Roth IRA must be in the beneficiary’s name
529 contributions made within the preceding five years cannot be rolled over.
$35K lifetime maximum (2024 is the 1st year that the Roth rollover is allowed, so this isn't an issue yet)

Re: 1099Q on 529 rollover to Roth are gains taxed by Federal

Zoom5 — Mon, 27 Jan 2025 02:21:08 GMT

Should be interesting how to report the 1099Q on State (NY taxes it) and not on Federal especially since TurboTax is currently broke on taxing this on Federal.

Re: 1099Q on 529 rollover to Roth are gains taxed by Federal

Hal_Al — Mon, 27 Jan 2025 02:33:01 GMT

The current workaround is to just answer yes at the screen titled "Distribution Transfer", even though Roth IRA isn't mentioned. I suspect "the fix" will be not much more than a pop up box (like for an ABLE transfer) explaining the rules.

Re: 1099Q on 529 rollover to Roth are gains taxed by Federal

Taxi_Nerd — Sun, 02 Feb 2025 14:12:58 GMT

The TT software fix needed must also deal with the Roth basis of this 529 to Roth transfer. What is the Roth Basis of this specific transfer? TT must keep track of your annual Roth basis. Just waiting for a real and comprehensive solution from TT.

Re: 1099Q on 529 rollover to Roth are gains taxed by Federal

Hal_Al — Sun, 02 Feb 2025 14:38:00 GMT

@Taxi_Nerd

Good catch. I passed your comment to TT.

Re: 1099Q on 529 rollover to Roth are gains taxed by Federal

Hal_Al — Fri, 07 Mar 2025 13:01:27 GMT

The IRS is still working on it too. But apparently not for this year,

"New checkbox 4b. Box 4 now has two checkboxes, 4a to
report trustee-to-trustee transfers and 4b to report a QTP to a
Roth IRA transfer."

https://www.irs.gov/pub/irs-dft/i1099q--dft.pdf (DRAFT)