529 to Roth Rollover

[jmbuzz855]

I was also told by my tax acct not to report the 1099Q transfer amount and the reason is that the IRS did not update the 1099 Q form for 2024  in time to include in your taxes. They have updated the form for 2025 now (https://www.irs.gov/instructions/i1099q) so Box 4 now has two checkboxes, 4a to report trustee-to-trustee transfers and 4b to report a QTP to a Roth IRA transfer (4b is the new one).  So workaround for 2024 is to not report it. I was told by Turbotax auditor in February that they did not update their software to cover this because the IRS did not update the form for 2024 but Turbotax might work on a program update but that has not happened in time for your 2024 filing deadline.

[user17738638037]

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.  

[MarilynG1]

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 

[user17740495763]

I have 2025 desktop TurboTax. Did a qualified 529 to Roth conversion for my son in 2025. I live in CA which does not honor the tax free treatment for the conversion.  My 1099-Q shows box 4b checked (QTP to Roth IRA), and the fund goes from 529 to the Roth IRA account directly.  Turbotax does not give me federal tax free treatment but enter the earnings to schedule 1 as other income.  I talked to the 529 plan and was told that the 1099-Q box 4b is marked correctly and it is a qualified rollover.  There is no 1099-R issued in this case.  I made 2 phone calls (2 hours) to turbotax support and cannot get the problem resolved. Based on previous discussions, I think TurboTax has a software error that only gives trustee-to-trustee transfer's with tax free treatment. 

TurboTax gives both federal and state tax free treatment when a "trustee-to-trustee" box is checked.  People in California won't get a box 4a (trustee-to-trustee) checked because the earnings is a taxable income by state.

In my case, the rollover should reported as a qualified rollover contribution and a Form 5329 to report show the transfer is an exception to the 10% tax on early distributions.  Can TurboTax fix the problem ASAP? 

[JFW3]

Your situation describes a real flaw in TT's answer: simply not inputting the 1099-Q for a qualified 529 to Roth transfer since it isn't required to be reported to the IRS.  From what you said, even though it is not taxable by the IRS, it is taxable for your CA state taxes. If the 1099-Q is not entered into TT, the state tax submission will be incorrect.  I wouldn't hold my breath for TT to correct it for 2025's tax submission.  I live in VA, so I know nothing about CA state tax.  But if anything like VA, it starts with IRS AGI, then subtracts items not taxable by the state and adds items not taxable by the IRS, but taxable by the state.  I think you'll probably need to adjust your CA state tax to add the income portion of the 529 to Roth rollover to your taxable CA state tax (assuming it's only the income portion, and I don't know who pays the state tax, the beneficiary or the owner).  TT should have that programmed into the CA state tax module.  If they don't, you may need to manually add it to your CA taxable income.  

[user17740495763]

@JFW3,

Thank you very much for your answer.  I'll file my federal return without 1099-Q. 

California state return has a "schedule CA" form for the adjustment and I need to add the 1099-Q earned income to that form so it'll add to the state income. Hopefully I can figure out how to do it with Turbotax.