529 Rollover to Roth in 2024 - how to report on tax return

[MollyShr]

Here's the token number for the tax return version without the Roth contribution entered separately, with only the 1099-Q entered, in case that's helpful. Note that the basis for the 529 to Roth contribution is not entered at all in the IRA worksheet.

Token Number:  583880740-35374638

[BrittanyS]

This is being reviewed by developers for an enhancement.  

@MollyShr 

[bbeasley1]

My question to this is do I report the 529 rollover to the Roth IRA as a Roth Contribution? And if so how do I tell TurboTax that I am not confined to the MAGI income Limitations. As I am being hit with a penalty for an over contribution. Do I not report the contribution at all due to the type of rollover? It's not a traditional rollover and not exactly a direct contribution and the IRS says I am not subject to the MAGI income limitations either. But TT is going to hit me with penalties for reporting the contribution to my Roth. 

[Hal_Al]

Q. My question to this is do I report the 529 rollover to the Roth IRA as a Roth Contribution?

A. No, not in your case.  You do  not enter the 1099-Q, since it is a qualified  rollover. Do not  enter the contribution at IRA contributions. 

Q. And if so how do I tell TurboTax that I am not confined to the MAGI income Limitations.

A. You can't .  TT can' t handle that, so just don't enter the contribution.  Entering it in TT does not report it to the IRS on your tax return. The IRS does that with form 5498. You'll have to manually track your Roth contributions, unless TT addresses this next year. 

[Peety88]

RE: 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). 

If one doesn't enter the 1099-Q, how does TT "prepare a 1099-Q worksheet" because I'm not getting a sheet at all.  Does one enter the payer's name, address, and other info but leave the distributions, earnings, basis at ZERO?

RE: You'll need to check the "trustee to  trustee  rollover" box at the 1099-Q screen. 

Are you saying in TT we should toggle over to forms view and just check off the "Trustee-to-trustee transfer" box?

RE: IRA Worksheet

In another response, you mention to NOT add the 529 to ROTH transfer amounts to the TT IRA Information Worksheets.  Should the 529 to ROTH transfers be recorded separately from direct ROTH contributions?  If so, should we just keep records of our past 529 to ROTH contributions so that when and if TT updates the software in future years, we can enter it manually or in the easy-step process (if available)?

Thanks so much for your help here and in other questions I've had to look up now and in the past.  You are usually so thorough and accurate.

[Hal_Al]

Q. If one doesn't enter the 1099-Q, how does TT "prepare a 1099-Q worksheet" because I'm not getting a sheet at all.  Does one enter the payer's name, address, and other info but leave the distributions, earnings, basis at ZERO?

A. TT only prepares the work sheet if you DO enter the 1099-Q. Enter all the info, including the numbers in boxes 1,2,& 3.  As previously stated: the chances of it being done wrong are high.

Q. Are you saying in TT we should toggle over to forms view and just check off the "Trustee-to-trustee transfer" box?

A. No. If you DO enter the 1099-Q, you check the trustee to trustee box at the 1099-Q screen, in the TT interview.

Q. In another response, you mention to NOT add the 529 to ROTH transfer amounts to the TT IRA Information Worksheets?

A. That sounds like bad advice. Can you direct me to that post, so that I can edit it. You should certainly keep track of the info and at some point (I'm not sure of now or later) you may need to enter it. TT may or may not cover back rollovers when they make the updates. 

[Peety88]

@Hal_Al , I think I may have read your reply as a general response and not as an answer to FamilyTaxPrep's specific question regarding the Saver's Tax Credit. FTP's question and your response below:  

" If you decide not to enter the 1099-Q, you lose the option of showing the Roth contribution when calculating the Savers Credit."

That assumes that TT will somehow automatically enter the Roth contribution from the 1099-Q area. I don't think that's a sure thing.  You still have the option of entering the Roth contribution in the IRA contributions area.

I took your response of "You still have the option of entering the Roth contribution in the IRA contributions area." as everyone needing to enter the 529 to Roth rollovers in the IRA area.  I entered my daughter's 2023 529 to Roth rollover in the IRA are of TT in the 2023 return and that seems to be incorrect.  1) I should correct her 2023 return by deducting the 2023 529 to Roth rollover.

2) In re-reading the multiple posts on this subject, it appears that all TT users will need to manually track all of our 529 to Roth rollovers outside of TT (allowed since tax year 2023) until when and if  TT updates the software to track this. Only Roth contributions from after tax earnings should show in the TT IRA section.

Are these the two correct actions?

[Hal_Al]

The IRS web site says "Rollover contributions do not qualify for the (Saver's) credit." Although they don't specifically address the 529 to Roth "rollover". https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-savings-contributions-cred...

Q1. I entered my daughter's 2023 529 to Roth rollover in the IRA are of TT in the 2023 return and that seems to be incorrect.   I should correct her 2023 return by deducting the 2023 529 to Roth rollover.

A1. No There's nothing to correct, unless you claimed the Saver's Credit.  Otherwise, because a Roth contribution is non deductible, when you enter it in TT, nothing actually goes on your  tax return. 

Q2. Only Roth contributions from after tax earnings should show in the TT IRA section.

A2.  I don't know.  I would think so.  A good question. I'll pass it along. 

[ARBTV]

@BrittanyS I could use some help with this.  I came across this discussion while researching other tax-related topics, and I can see that we have been affected by this.  We rolled some funds from our two sons' 529 plans into their Roth IRAs, and entered all of the information from the 1099-Q forms into TurboTax.  As a result TurboTax created a significant tax liability for us.  To complicate matters, funds from one son's 529 were also rolled from the Ohio 529 plan to the Vermont 529 plan, which should also be an untaxed event.

We have already filed our federal and state taxes and received our refund.   Exactly how should we approach amending our return to recoup the additional refund amount?  We would appreciate any details.  Please advise. Thank you!

[AmyC]

You will need to amend your tax return once the process is complete. See another post of mine for help amending.

For the rollover from OH to VT, it is a nontaxable transaction. For the ROTH, if the child has the earned income to support the contribution, it is not taxable. A nontaxable transaction should not be entered.  Please remove the form and keep it with your tax files.

 IRS Publication 970, Tax Benefits for Education states:

Any amount distributed from a QTP isn't taxable if it's rolled over to:

• Another QTP for the benefit of the same beneficiary or for the benefit of a member of the beneficiary's family (including the beneficiary's spouse),
• An ABLE account for the benefit of the same beneficiary or for the benefit of a member of the beneficiary’s family (including the beneficiary’s spouse). But this doesn’t apply to the extent the amount distributed when added to other amounts contributed to the ABLE account exceeds the annual contribution limit. For more information about ABLE accounts, see Pub. 907, Tax Highlights for Persons With Disabilities, or
• 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 Publication 590-A.

@ARBTV 

[Hal_Al]

Q. Exactly how should we approach amending our return to recoup the additional refund amount?  

A.  When preparing the amended return, you simply delete the 1099-Qs, since you know none of it is taxable. 

The 1099-Q is  only an informational document. The numbers on it are not required to be entered onto your (or your student's) tax return. The interview is complicated and it's easy to make mistakes. Avoid it if you can and you can. 

You can just not report the 1099-Q, at all, if your student-beneficiary has sufficient educational expenses,  to cover the distribution or the 1099-Q was issued for a rollover.  When the box 1 amount on form 1099-Q is fully covered by expenses, TurboTax will enter nothing about the 1099-Q on the actual tax forms. 

References:

1. 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." 
2. IRS Pub 970 states: “Generally, distributions are tax free if they aren't more than the beneficiary's AQEE for the year. Don't report tax-free distributions (including qualifying rollovers) on your tax return”.
3. "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." 

[ARBTV]

Thank you very much @AmyC  for your expert guidance.  I've read through your post on filing an amendment, and also read the reply that suggested taking a backup of my tax file prior to any changes, using a different file name.  I'll do that.  The instructions for amending answered a follow-up question I had on how TT would compute our additional refund - specifically that it will start at $0 refund and only reflect the updated amount.  

I have been a TurboTax customer since the floppy disk days and this is the first year in all that time I've had any issues.  I had a couple this year and was contemplating moving to a different tax solution for 2025.  Your kind support and good answer might have saved my business!  THANKS. 

[ARBTV]

Thank you @Hal_Al for your suggestion.  Between your response and @AmyC's instructions, I think I'm ready to give it a try.

Maybe next time I'll ask you to "Open the pod bay doors, @Hal_Al " 🤣