QTP Transfer to Roth

[Mochina]

Under Secure Act 2.0, my son is able to transfer $7,000 of unused 529 Plan funds tax-free to his Roth IRA. He has followed all the rules governing this "rollover" and received a 1099-Q from the 529 Plan indicating that it is a "QTP transfer to a Roth." As others have pointed out, TurboTax this year indicates that its "software has not been updated to support this yet."

Here are my questions:

1) Has the updating really not been done--it is March 20, 2026!  

2) For tax year 2024, he characterized a similar rollover of $6,597.45 as a contribution to Roth. Does he do this again for 2025 or does he completely ignore the 1099-Q on his federal return? 

3) Since he lives in California, which does not follow the federal Secure Act 2.0 tax exemption, for the California 540 return, he clicked on a "Miscellaneous adjustment" and selected "expanded use of 529" and enter the earnings portion of the rollover + 2.5% tax penalty as "excluded income from federal." Is this the correct procedure for including the rollover onto his Californ 540 tax return? 

4) Also, Turbotax used to allow me to discuss questions with a "tax expert" and share Turbotax screens with that expert without paying an extra fee.  Is that service now only available by paying an extra $60 for Turbotax Live Expert? 

[MarilynG1]

Yes, this is the correct way to report the 529 Rollover to Roth for California. Since the tax-free rollover is for a beneficiary, it doesn't need to be reported on the recipient's federal tax return.  Form 5498 is documentation for your records (along with the 1099-Q).

Unless a 1099-Q has taxable earnings for a non-qualified distribution, it does not need to be included in your tax return.  Here's more info on Form 1099-Q. 

You can Contact TurboTax Support and share screens with customer support at no charge. 

@Mochina 

[Edited 03/24/2026 | 9:22 am]

[Mochina]

To be clear when Marilyn indicates that my son shouldn't include the 1099-Q on the federal tax return since it is federal tax free, does that mean that he does not report a Roth contribution on the federal return at all for 2025?

[AmyC]

No. The ROTH contribution should be entered with earned income equal or greater than the contribution. @MarilynG1 is correct that your 1099-Q should not be entered.

For CA:

• The Adjustment: Since the rollover is tax-free federally but taxable in CA, he must add the earnings portion of the rollover to his California income.
• The Penalty: He also owes a 2.5% CA tax penalty on those earnings (since CA views this as a non-qualified withdrawal). This is on Form FTB 3805P.
• TurboTax Tip: Entering it as a "Miscellaneous Adjustment" or "Addition to Income" on the California return is the standard workaround to ensure the state gets its cut while keeping the federal return tax-free.

[Mochina]

I am about ready to efile my son's federal and California state returns based on QTP rollover to Roth advice by TurboTax "experts": don't enter it on the federal return because it is tax-free and tax the rollover on California return's Miscellaneous Adjustment. Now I am hearing that Turbotax is now in the process of updating its software to deal with the QTP in a more clear way.  Do I have to backtrack and use the modified Turbotax software when it is completely updated or can I go ahead and file with the forementioned adjustments? 

[DaveF1006]

No, you do not have to wait for TurboTax’s pending update. If your current entries correctly reflect the federal tax‑free treatment of the QTP, Roth rollover and the California taxable adjustment, this should suffice for this year's filing.

[Mochina]

Dave:

Thank you very much!