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!