529 to Roth Rollover

[JFW3]

I met the requirements to do a 529 to Roth rollover in 2024 and moved $7000.  I see the 529 plan issued a 1099-Q for this transfer to the Roth account owner.  The only difference I note between this 1099-Q and the "normal" 1099-Q used to pay college expenses is that Roth rollover one has Box 4 "Trustee-to-trustee" transfer checked.  Does the Roth account owner have to report the 1099-Q?  And if so, how does Turbo tax know not to add the earnings amount to their taxable earnings?  

[MayaD]

If distributions from the 529 plan are not taxable, do not enter the 1099-Q forms.

For calendar years beginning after 2023, funds from an established 529 account can be transferred tax-free and penalty free to a Roth IRA for the beneficiary of the 529 account. 

• The 529 account must have been open for at least 15 years.
• The beneficiary of the 529 account and the owner of the Roth IRA must be the same person.
• The amount of the rollover is limited:
  • Annual rollovers are subject to applicable Roth IRA contribution limits. $ 7000- $8000( 50 or older)
  • Rollover amounts from all 529 plan accounts may not exceed $35,000. Lifetime limit
• The money transferred must have been in the account for at least five years, and the amount can’t exceed your balance from five years prior.
• A Roth rollover from my529 must be paid in a trustee-to-trustee transfer. An account owner can't take a withdrawal for themselves and then send the money to a Roth IRA account

my529

[JFW3]

Just not inputting the 1099-Q will work, but there is a certain hesitation to simply not input a validly issued tax form into Turbotax.  It would be better to input the 1099-Q and then proactively indicate (assuming it meets the criteria) that it is a qualified 529 to Roth Rollover.  Better procedure and better documentation.  All they need to do check that the trustee-to-trustee transfer box is checked and then allow users to indicate whether it was a qualified 529 to Roth Rollover.  If so, then the earnings amount would not be taxable.

[AmyC]

No, that goes against the IRS. The IRS does say to keep the form and documents in case they have a question. IRS Publication 970, Tax Benefits for Education states:

If the entire 1099-Q went to qualified expenses, room and board, tuition, etc then you do not need to enter the form. Tuition paid for the first 3 months of the next year also qualify, see page 12, What Expenses Qualify, and page 52 for qualified distributions.

Page 45  repeats: Don't report tax-free distributions (including qualifying rollovers) on your tax return.

[JFW3]

I understand what you are saying.  I'm not questioning the reporting to the IRS, but the way Turbo Tax handles the forms.  I've always had my kid's 529 account withdrawals for school sent to me, and I'd pay the bills.  I've input both the 1099-Q and the 1098-T (plus added school expenses) into Turbo Tax.  The program offset the two, and neither was reported to the IRS.  I guess I was expecting similar in the rollover to a Roth, with the 529 account holder inputting information about the dollars leaving the 529 account via the 1099-Q and then inputting support for it not being taxable into TurboTax and the program handling the offset.  This is different though, which maybe explains the difference in TT input, as the 1099-Q is sent to the Roth account holder vs. the 529 account owner.  The 529 account owner is responsible for verifying that the withdrawal is qualified and not taxable, but they don't necessarily get the 1099-Q...  perhaps the IRS should send a copy of the 1099-Q to the 529 account owner for Roth rollovers... but that's not my call.  Thanks for helping me think this through.

[AmyC]

You are right that the program handles different parts and cancels out when needed. In this case, you are used to entering the Q, so it seems odd not to. When it cancels out, the IRS doesn't realize it. They have just been ignoring your Q's for years. You are smart and it shows. Tuck it away and enjoy!

[taxpayer71]

I'm in a similar situation but more complex.  I have a 529 plan for my daughter.  I get all the reimbursements and the tax forms.  She set up a Roth IRA in 2024.   I did a trust-to-trust transfer with Fidelity.   However, they didn't get it done until January 2025, put they said it will be qualified for 2024.  A couple of questions:  What do I report on my tax return and what does my daughter report on hers.  Assuming the transfer made it on time in 2024 and also, in 2025 (for 2024 contribution).  Right now I tentatively put there was a contribution for Roth IRA on her return that was made before the tax filing deadline (but no mentioned where the funds came from).  I think would be OK for her.  But for me, what do I have to do on my tax return.  Thanks for any insight!

[KrisD15]

This was answered on your other posted question 

Nothing needs to be entered into the program.

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.”

[JFW3]

I have the same situation except for my 529 to Roth rollover was processed in 2024 for tax year 2024.  I believe you have until April 15th to process these transactions.  As far as I can tell, nobody (neither the Roth recipient nor the 529 account owner) reports this 1099-Q on their tax return (nor do they input in Turbo Tax) as long as it was a qualified transfer.  I don't think you should be inputting a Roth contribution as it was a 529 to Roth rollover (that counts to the $7000 annual Roth contribution limit for those under 50).  If you report a Roth contribution and a 529 to Roth rollover for the same dollars, I think you may double the amount going into the Roth (ultimately reported by Fidelity on informational Form 5498) because theoretically you can do both.  If you stay under the $7000 limit, that would be fine.  For example, you could do a Roth contribution of $3500 and a 529 to Roth Rollover for $3500.  Appreciate others thoughts on this.  

[AmyC]

There is a big difference between a contribution and a rollover. A rollover is an unlimited number. You can roll $500,000 over to a ROTH from somewhere legally allowed. But the contributions are limited, as you state. 

See Retirement topics - IRA contribution limits states:

The IRA contribution limit does not apply to:

• Rollover contributions
• Qualified reservist repayments

@JFW3