Need help with 1099-Q

[Greta]

Grandchild did not go to college. Gross distribution $2050, earnings $509. How to include earnings in Grandfather's income, plus 10% penalty. Would a transfer to grandchild's Roth need to have been done in 2025?

[ljr]

input the 1099-Q and link to someone else the earnings would be taxable to the grandfather. no 10% penalty. Roth transfer same year as distribution.

[IntuitVanessa A]

Yes, it would have had to be done in 2025 at the time of the distribution. A transfer to the grandchild's Roth to avoid a tax penalty would have had to be a direct trustee to trustee transfer. 

(E)Special rollover to roth iras from long-term qualified tuition programs

(i)In general

In the case of a distribution from a qualified tuition program of a designated beneficiary which has been maintained for the 15-year period ending on the date of such distribution, subparagraph (A) shall not apply to so much the portion of such distribution which—

(I)

does not exceed the aggregate amount contributed to the program (and earnings attributable thereto) before the 5-year period ending on the date of the distribution, and

(II)

is paid in a direct trustee-to-trustee transfer to a Roth IRA maintained for the benefit of such designated beneficiary.

To enter the earnings on the grandfathers return, select the following:

1. 1099-Q (If this will not show up, you may need to go to the Schedule 1 line 8z and zoom to open forms to create the 1099-Q)
2. On line A select someone else for the designated beneficiary
3. On line B choose the Taxpayer or spouse (depending on how Grandfather is listed on the return)
4. After entering the information from the 1099-Q, be sure to complete the  activity information on the worksheet so the amount that is taxable on Schedule 1 is only the earnings.