529 to Roth Rollover

Forum|Forum|1 year ago
January 23, 2025
2 replies
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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

Alumni - Intuit

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

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catonyx

Level 2

@MayaD

I don't get it. Is this a flaw in TurboTax? I should be able to enter the forms in TurboTax (desktop in my case) and have it handled it correctly. The 1099Q was addressed to my daughter so I think it would be handled in her return, not mine. When I do this, it appears to be treated as income and taxable which I am 99% percent sure that is wrong. The whole point of the rollover is to avoid paying taxes. It looks like it is taxing the gains only which would make sense in other cases. There doesn't seem to be a question in TurboTax to handle this correctly.

MarilynG

Level 15

Today I tried to enter a QTP to roth transfer and got the message from TurboTax that this has not been updated in their system yet. So, yes it is a flaw especially since it's been two years that we can do this tax free.

Yes, you can do a tax-free rollover of 529 funds to a Roth IRA; however, this does not need to be reported on your tax return, particularly if you're the recipient of the 1099-Q and the Roth IRA is for the beneficiary.

If that applies, the beneficiary keeps Form 5498 as documentation, and may receive a 1099-R reporting the non-taxable rollover. The checkbox on form 1099-Q is for your records to indicate that the rollover was done with 529 funds.

Here's more info from IRS Pub. 970.

@user17738638037

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