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

Forum|Forum|1 year ago
January 8, 2025
3 replies
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Hello - I don't have the 1099Q yet but wanted to know how this gets reported in Turbotax to reflect that the distribution is not taxable. I tried to do a mock up of the 1099Q with the data I have, but I didn't see an option in Turbotax to distinguish this type of transfer.

Thanks

Sam618

I have the same question. Specifically, does the beneficiary report the 529 to Roth IRA transfer or the account owner report the transfer?

I have two 529 accounts for my two sons. I executed transfer for each of their 529 accounts into their Roth IRA accounts. The custodian of the accounts, Fidelity, issued two 1099-Q forms for the transfers in my account.

1. One is address to my son with his SSN, and box 6 of the form is unchecked (meaning recipient is the designated beneficiary).

2. The other one is address to me, the account owner, with my SSN, and box 6 of the form is checked (meaning the recipient is NOT the designated beneficiary).

One of these forms must be incorrect.

It made me wonder who should report the transfer in TurboTax. Me, the 529 account owner? Or my sons, the beneficiaries of the 529 accounts and the owner of the Roth IRA accounts?

Thanks.

Hal_Al

Employee

I'm not seeing how to do it. I have desktop (download) Deluxe. I have flagged this issue to the TurboTax Moderators. I'll post here, when I hear from them.

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, 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 show it went to another trustee.

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

EarlybirdAuthor

OK I did enter the 1099Q - just received - to see again if there was an option to reflect as a rollover to a Roth. There is not, and it computes the earnings as taxable income. I am concerned about receiving an IRS notice for this later since it will appear as unreported income. I am surprised there is no mechanism on the return to reflect this kind of transfer. I could delete the form entirely but that doesn't seem right to me. Will there be further updates on this from Turbotax? Thanks

llitch03

Today's date 2/18/25 - Turbotax still doesn't have this updated in the program. It does need to be updated/ fixed, so hopefully the message gets through to the software writers.

EarlybirdAuthor

My understanding is that nothing is going to be updated in Turbotax regarding this.

FamilyTaxPrep

There is one other consideration when determining whether to include the 1099-Q on the tax return for the recipient/beneficiary in connection with the 529 Rollover to Roth treatment: How that connects to the Credit for Qualified Retirement Savings. We rolled over funds left in our older son's 529 to his Roth and he received a 1099-Q (all properly completed by Virginia529). However, this amount should be considered a Roth contribution, which permits him to do the calculation for the Savers Credit (he finished college years ago). As long as you treat this as a rollover in TurboTax, the earnings reflected on the 1099-Q are not taxable and the Savers Credit can use this amount for the calculation. If you decide not to enter the 1099-Q, you lose the option of showing the Roth contribution when calculating the Savers Credit.

Hal_Al

Employee

" 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.

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-credit-savers-credit