529 to Roth IRA

[Opfor77]

Client is part time college student, aside from working.  He transferred $7,000 from a 529 to a Roth IRA.  1099-Q distribution of $7,000, 5498 Roth IRA contribution of $7,000.  It is showing in Proseries as being taxed.  How do I change this to be tax free?

[Terry53029]

Did he meet all the rules to do that ? You don't report on tax return. Just keep 1099Q and 5498 for your records

• The 529 account must be at least 15 years old 
• The Roth IRA must be in the same name as the 529 beneficiary
• The amount to be rolled over must have been in the 529 account for at least five years 
• The rollover must be within Roth IRA annual contribution limits
• The rollover must be a trustee-to-trustee transfer
• He must have earned income at least the amount rolled over

[Opfor77]

Yes, except for the earned income.  I though that was done away with in 2024.

[George4Tacks]

https://www.irs.gov/publications/p590a#en_US_2024_publink1000129982

Qualified tuition program rollover to a Roth IRA.

 

Beginning with distributions made after December 31, 2023, a beneficiary of a section 529 qualified tuition program is permitted to roll over a distribution from the section 529 account to a Roth IRA for the beneficiary if certain requirements are met.

• The rollover must be paid through a direct trustee-to-trustee transfer to a Roth IRA maintained for the benefit of the beneficiary.

• The rollover amount for a year cannot be more than the Roth IRA annual contributions limit, and all such rollovers for the individual’s lifetime cannot exceed $35,000.

• The rollover must be from a section 529 account that has been open for more than 15 years.

• The distribution cannot exceed the aggregate amount contributed to the program (and earnings attributed to the contributed amount) before the 5-year period ending on the date of the distribution.

A distribution made after December 31, 2024, and before April 15, 2025, that is rolled over to a Roth IRA by April 15, 2025, and designated for 2024 would be reported as a Roth IRA contribution for 2024.

Income.

 

You must include in your gross income distributions from a traditional IRA that you would have had to include in income if you hadn’t converted them into a Roth IRA. These amounts are normally included in income on your return for the year that you converted them from a traditional IRA to a Roth IRA.

[Opfor77]

All of those conditions are met.  Maybe there's a box to check that I'm missing....frustrating

[George4Tacks]

https://accountants.intuit.com/community/proseries-tax-discussions/discussion/529-plan-distribution-...

[Terry53029]

@Opfor77  I may have missed the change of earned income not required would have to look that up, but as I said you do not report on your tax return. From pub 590 A "Contributions not reported. You don’t report Roth IRA contributions on your return.", and you have never reported a 5498 on your taxes it is only for your information

[rbynaker]

When I learned this (part of SECURE 2.0 I think), the earned income limitation applied.  I took a quick peek into 529(c)(3)(E) which led me to 408A(c)(2) which referenced 219 "without regard to (g)".  So it excludes the AGI phase out for Roth IRAs in 219(g) but I don't see where it excludes the earned income requirement in 219(b)(1)(B).  Was there an IRS notice or something that removed the earned income limitation?

Please share if you have something we can hang our hats on.  Otherwise I think I'm with Terry on this one.

Rick

[George4Tacks]

I have learned from a trust source, who is currently banned for some unknown reason:

check the box: Trustee to Trustee transfer and the tax disappears.