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1099-Q for roth conversion

Posted: Fri Jan 10, 2025 9:45 am
by dillrob
Does anyone know what the proper 1099-Q codes should be for a 529-to-roth conversion where the funds are directly transferred from the 529 plan to the 529 plan's beneficiary's Roth IRA?
I am reviewing the recently issued 1099-Q for a 529-to-roth conversion and the distribution amount (as well as the basis and gain) is correct, line 4 box is checked (which appears to be correct), line 6 box is checked (which appears to be wrong since the recipient is the same as the 529 plan beneficiary) and the line 6 distribution code is 1.
I'd appreciate input from anyone with experience with the correct 1099-Q designations for such a conversion and whether the above appears to be correct. Thanks.

Re: 1099-Q for roth conversion

Posted: Fri Jan 10, 2025 8:48 pm
by Eagle33
Last I heard was that the IRS has not yet provided any specific guidance regarding 529 to Roth IRA contributions. Its a Roth contribution, not a conversion.

Re: 1099-Q for roth conversion

Posted: Fri Jan 10, 2025 9:26 pm
by Alan S.
dillrob wrote: Fri Jan 10, 2025 9:45 am Does anyone know what the proper 1099-Q codes should be for a 529-to-roth conversion where the funds are directly transferred from the 529 plan to the 529 plan's beneficiary's Roth IRA?
I am reviewing the recently issued 1099-Q for a 529-to-roth conversion and the distribution amount (as well as the basis and gain) is correct, line 4 box is checked (which appears to be correct), line 6 box is checked (which appears to be wrong since the recipient is the same as the 529 plan beneficiary) and the line 6 distribution code is 1.
I'd appreciate input from anyone with experience with the correct 1099-Q designations for such a conversion and whether the above appears to be correct. Thanks.
The IRS has not issued 1099Q instructions relating to 529 to Roth transfers, although they have directed the Roth custodian to report the rollover as a Roth IRA contribution on Form 5498. This could be troublesome, because a 529 transfer to a Roth IRA moves a pro rated amount of 529 contributions and gains to the Roth IRA as if they were Roth contributions and gains. When the Roth custodian reports the total transfer as a regular Roth IRA contribution on Form 5498, the Roth owner should not be able to treat that entire amount as Roth IRA basis, because it includes gains. But the IRS was more pre occupied with making sure that the transfer used up the Roth contribution space.

There is no reason for the Roth custodian to care how much is contribution and gain because they don't track gains, only basis. This could be a quandary for the IRS and the reason why 1099Q Inst do not yet address these transfers.

My guess is that if a 1099Q is eventually required, it will only include checking the trustee to trustee transfer box for a Roth transfer, as this is not a distribution and no part of it is taxable. In the meantime, unless the 529 custodian has received non public guidance from the IRS, taking a stab at an accurate 1099Q could have consequences.

Re: 1099-Q for roth conversion

Posted: Thu Jan 23, 2025 8:59 am
by Polaris
I just got 1099-Q forms from Fidelity for the 529 to Roth rollovers we did for our kids in 2024. Does this info need to be reported on our (account owner) or their (account beneficiary) tax returns? This is obviously the first time we've done this, so I don't know if this is just something we keep for our records or if the rollover needs to be noted on someone's tax return.

Re: 1099-Q for roth conversion

Posted: Thu Jan 23, 2025 12:27 pm
by Alan S.
Polaris wrote: Thu Jan 23, 2025 8:59 am I just got 1099-Q forms from Fidelity for the 529 to Roth rollovers we did for our kids in 2024. Does this info need to be reported on our (account owner) or their (account beneficiary) tax returns? This is obviously the first time we've done this, so I don't know if this is just something we keep for our records or if the rollover needs to be noted on someone's tax return.
Depends on how the 1099Q was issued. What shows in Boxes 1-6? If consistent with a TtoT transfer, then just retain the form and do not report anything on either your or the beneficiary's return.

While the specific 1099Q instructions have not been issued for this situation, the 1099R should likely have the amount transferred in Box 1, 2 and 3 should be blank, 4 should be checked, 5 checked, and 6 blank.

Re: 1099-Q for roth conversion

Posted: Thu Jan 23, 2025 3:40 pm
by Polaris
Alan S. wrote: Thu Jan 23, 2025 12:27 pmDepends on how the 1099Q was issued. What shows in Boxes 1-6? If consistent with a TtoT transfer, then just retain the form and do not report anything on either your or the beneficiary's return.

While the specific 1099Q instructions have not been issued for this situation, the 1099R should likely have the amount transferred in Box 1, 2 and 3 should be blank, 4 should be checked, 5 checked, and 6 blank.
The 1099Q's were issued in the beneficiary's name. Both were identical except for the earnings/basis amounts:

Image

Re: 1099-Q for roth conversion

Posted: Thu Jan 23, 2025 7:21 pm
by Alan S.
Polaris wrote: Thu Jan 23, 2025 3:40 pm
Alan S. wrote: Thu Jan 23, 2025 12:27 pmDepends on how the 1099Q was issued. What shows in Boxes 1-6? If consistent with a TtoT transfer, then just retain the form and do not report anything on either your or the beneficiary's return.

While the specific 1099Q instructions have not been issued for this situation, the 1099R should likely have the amount transferred in Box 1, 2 and 3 should be blank, 4 should be checked, 5 checked, and 6 blank.
The 1099Q's were issued in the beneficiary's name. Both were identical except for the earnings/basis amounts:

Image
Thanks for posting.
I did not expect figures in Boxes 2 and 3, but the trustee transfer box still identifies this as a non reportable transaction on your tax return.

But Box 3 does tell you how much the regular Roth basis is increased for the beneficiary's Roth IRA, as that figure needs to be tracked should the beneficiary eventually take a NQ Roth IRA distribution.

Re: 1099-Q for roth conversion

Posted: Thu Jan 23, 2025 7:48 pm
by HueyLD
The 1099-Q issued by Fidelity uses the year 2023 form.

Year 2024 draft 1099-Q and Instructions are available and there is a check box for QTIP to Roth IRA transfer for box 4.

https://www.irs.gov/pub/irs-dft/f1099q--dft.pdf

https://www.irs.gov/pub/irs-dft/i1099q--dft.pdf

Re: 1099-Q for roth conversion

Posted: Fri Jan 24, 2025 8:53 am
by dillrob
The 1099Q I received is similar EXCEPT Box 6 is checked which is incorrect. The 529 designated beneficiary is the same as the Roth IRA recipient. I emailed Fidelity requesting a corrected 1099Q.

Re: 1099-Q for roth conversion

Posted: Fri Jan 24, 2025 9:43 am
by Alan S.
dillrob wrote: Fri Jan 24, 2025 8:53 am The 1099Q I received is similar EXCEPT Box 6 is checked which is incorrect. The 529 designated beneficiary is the same as the Roth IRA recipient. I emailed Fidelity requesting a corrected 1099Q.
Good move. Uncorrected, this could have caused problems down the road, making the transfer ineligible.

Thanks to Huey for posting the updated draft form, but the IRS is a little late to the party as these forms were not available for reporting 2024 transfers to a Roth IRA.

Re: 1099-Q for roth conversion

Posted: Fri Jan 24, 2025 10:13 am
by Polaris
Alan S. wrote: Thu Jan 23, 2025 7:21 pmThanks for posting.
I did not expect figures in Boxes 2 and 3, but the trustee transfer box still identifies this as a non reportable transaction on your tax return.

But Box 3 does tell you how much the regular Roth basis is increased for the beneficiary's Roth IRA, as that figure needs to be tracked should the beneficiary eventually take a NQ Roth IRA distribution.
Thanks for the reply. I'll archive the records as always, but a very long list of things would have to go wrong for the Roth to be touched before their retirement. :)

Re: 1099-Q for roth conversion

Posted: Wed Jan 29, 2025 10:51 am
by tboll058
So is the final answer to this question that as long as Box 4 is checked (T to T) and that the 1099-Q lists the beneficiary (child, not the parent-owner) as the "Recipient" (and Box 6 is blank), then No one has to Report this 1099-Q on their Tax Return?

Re: 1099-Q for roth conversion

Posted: Fri Jan 31, 2025 2:39 pm
by verbose
I have a question on a twist of this scenario. I did the 529 to Roth rollover for the beneficiary of the 529 in 2024. A 1099-Q was issued for 2024. However, I had to mail a paper form, and it arrived late in December. The Roth IRA custodian received the funds in January 2025 and consider them a 2025 contribution. The 5498 won't be issued until May 2026. Is this a problem?

Re: 1099-Q for roth conversion

Posted: Fri Jan 31, 2025 7:38 pm
by Alan S.
tboll058 wrote: Wed Jan 29, 2025 10:51 am So is the final answer to this question that as long as Box 4 is checked (T to T) and that the 1099-Q lists the beneficiary (child, not the parent-owner) as the "Recipient" (and Box 6 is blank), then No one has to Report this 1099-Q on their Tax Return?
Yes, no reporting needed for this 1099 Q.

Re: 1099-Q for roth conversion

Posted: Fri Jan 31, 2025 7:51 pm
by Alan S.
verbose wrote: Fri Jan 31, 2025 2:39 pm I have a question on a twist of this scenario. I did the 529 to Roth rollover for the beneficiary of the 529 in 2024. A 1099-Q was issued for 2024. However, I had to mail a paper form, and it arrived late in December. The Roth IRA custodian received the funds in January 2025 and consider them a 2025 contribution. The 5498 won't be issued until May 2026. Is this a problem?
The beneficiary has the option to notify the Roth custodian that this contribution is to be applied to 2024 because it was made during the period in which the contribution could be assigned either to 2024 or 2025. The following is copied from 2023 IRS Pub 590A, p 2. Update the years in the last paragraph by 1 to 2024 and 2025 to reflect what the 2024 590 A will show:
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 trustee-to-trustee
transfer.
• The rollover amount cannot be more than the Roth
IRA annual contributions limit.
• The rollover must be from a section 529 account that
has been open for more than 15 years.
The distribution is paid in a direct trustee-to-trustee
transfer (rollover) to a Roth IRA maintained for the benefit
of the designated beneficiary. 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, 2023, and before April 15, 2024, that is rolled over to a Roth IRA by April 15, 2024, and designated for 2023 would be reported as a Roth IRA contribution for 2023.
Beneficiary needs to notify the Roth custodian prior to 4/15/2025.

Re: 1099-Q for roth conversion

Posted: Wed Feb 05, 2025 3:51 pm
by zebra99
Hi, I have a Fidelity 529 account for my son and I did a direct Roth conversion to my Son's Roth IRA in 2024.

I received a 1099-Q to me from fidelity, it had correct values for Box 1,2,3. Box 4 trustee-to-trustee was checked
Box 5 was state and Box 6 was checked (I think its wrong as money was transferred to beneficiary)

so I emailed fidelity to fix the Box 6 (uncheck it) and send a new 1099-Q to my son's name

After a week or so, I got a new 1099-Q from fidelity, In this form Box 1,2,3 are 0 (zero) and rest is same - Box 4,5,6 are checked.
I was expecting them to uncheck box 6 and address form to my son but they didn't.

What to do now ? ask them to fix again ? is it ok to have zero for Box 1,2,3 (meaning nothing to report) ??
TIA for any input.

Re: 1099-Q for roth conversion

Posted: Wed Feb 05, 2025 4:52 pm
by Alan S.
zebra99 wrote: Wed Feb 05, 2025 3:51 pm Hi, I have a Fidelity 529 account for my son and I did a direct Roth conversion to my Son's Roth IRA in 2024.

I received a 1099-Q to me from fidelity, it had correct values for Box 1,2,3. Box 4 trustee-to-trustee was checked
Box 5 was state and Box 6 was checked (I think its wrong as money was transferred to beneficiary)

so I emailed fidelity to fix the Box 6 (uncheck it) and send a new 1099-Q to my son's name

After a week or so, I got a new 1099-Q from fidelity, In this form Box 1,2,3 are 0 (zero) and rest is same - Box 4,5,6 are checked.
I was expecting them to uncheck box 6 and address form to my son but they didn't.

What to do now ? ask them to fix again ? is it ok to have zero for Box 1,2,3 (meaning nothing to report) ??
TIA for any input.
You asked for a correction, and they only added more errors. Firms are winging this due to IRS delays, and the draft 1099R Inst as posted by Huey above are not yet released, so Fidelity is likely using the old 2019 edition.

Ask them to complete as follows:
1) The 1099R must be issued to your son under his SSN.
2) Boxes 1, 2, and 3 should either be completed or all left blank. Probably does not matter. You are not reporting a correct 1099Q transfer on his return either way, but if these boxes are completed you will know how much his Roth IRA basis has increased (the Box 3 basis amount).
3) Box 4 needs to be checked
4) Box 5 should be completed
5) Box 6 absolutely needs to be blank for a QTP to Roth rollover (or there is a taxable distribution).