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)
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the Roth IRA must be in the beneficiary’s name
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529 contributions made within the preceding five years cannot be rolled over.
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$35K lifetime maximum (2024 is the 1st year that the Roth rollover is allowed, so this isn't an issue yet)
