529 plan rollover to Roth

[LRTWalker]

We are parents who set up a 529 plan for our son, the NY state plan which provided stated tax benefits for contributions.  Money has been in for some time and son is graduated and working.  We decided to take advantage of the 529 federal tax free conversion to Roth and moved $7,000 from the 529 into his Roth.  the plan sent a 1099-Q to my son for the amount. 

My question is - since it has come to him then this is applicable to him and his taxes yes?

For the 1040 this is not needed as its tax free yes?  or is there a place to reflect this on the form?

For NY taxes will be owed, since the form came to Son is his then responsible for the NY taxes (even though it was us that got the initial benefit)?

If so how do we do this, he moved to Wisconsin and has been filing Fed/Wis state taxes, does he need to file a NY state tax for just to pay the taxes on this contribution?

If so does the program set up to address this specific issue of not federal taxed but state taxed?

[AmyC · Accepted solution]

1. Yes it is his 1099-Q but  it will not have any tax consequence, if the rollover rules were met.

2.  Yes it is NOT entered in the program when tax free. 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.”

3. NY state has conditions for it to be tax free.  He may not have any taxable NY income. Tax free rollover conditions: 

• The 529 account must have been open for more than 15 years.
• The eligible rollover amount must have been in the 529 account for at least 5 years.
• The annual rollover limit is subject to Roth IRA annual contribution limits.
• Rollovers can only be made to the Roth IRA account owned by the named 529 account beneficiary.

If he needs to file a NY return as a nonresident, he can. See Do I need to file an income tax return for NY?

4. WI as resident state taxes all income. If a NY return must be filed, WI will give credit for any double taxed income. WI follows the federal to determine taxation. If the distribution is not taxed on federal, it is not taxed on WI. 

5. The program can handle the various states, residences, incomes and credits. Hopefully, it is all non-taxable and he can just tuck the paperwork into his tax file.