Yes, that is still the case and yes, you are correct - a 529 Plan rollover to a Roth IRA does not need to be (and should not be) reported on your federal tax return if it meets the requirements for a non-taxable transaction. 529 plan rollovers to a Roth IRA are taxable in California, even if they are tax-free for federal tax. California considers 529 to Roth rollovers as non-qualified withdrawals; therefore, the earnings portion is subject to state income tax and a penalty of 2.5% for a non-qualified withdrawal.
To enter the adjustment to add the taxable portion to your California State Tax Return, while in your California return do the following:
- Navigate to Here's the Income that California Handles Differently.
- Scroll down to the Miscellaneous section.
- Select the Expanded use of 529.
- Answer the question about elementary school
- Next you will be asked for the Income Excluded from your Federal Adjusted Gross Income. Enter ONLY the taxable portion of the distribution.
For more information on 529 Plan Rollovers to a Roth IRA, see IRS Publication 970, Tax Benefits for Education
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