Can 529 funds be directly distributed to a Roth IRA and how do I report this on my taxes?

Moving money directly from a 529 plan to a Roth IRA is tricky because they're two different types of tax-advantaged accounts with different rules. When you get a 1099-Q, it shows a distribution from the 529 plan. That distribution is typically tax-free only if used for qualified educational expenses. If your father took money from his 529 and then separately contributed to your Roth IRA, these are two separate transactions. The 1099-Q reports the 529 withdrawal, and you'll need to determine if that's taxable (based on whether it was used for education). For the Roth IRA side, you would report it as a contribution on your tax return only if YOU made the contribution. If your father made the contribution to your Roth IRA, that's considered a gift from him to you, and then you making the contribution. You can only contribute to a Roth IRA if you have earned income, and there are annual limits ($6,500 for most people under 50 in 2023).

I had a similar situation last year and checked out https://taxr.ai to sort through it. They helped explain that 529 distributions that don't go to qualified education expenses are usually taxable plus a 10% penalty. But what most people don't realize is you can't just directly move money from a 529 to a Roth IRA - these are completely separate transactions. When I uploaded my 1099-Q form to their system, they flagged that I needed to report the 529 distribution as potentially taxable (depending on how it was used), and separately track my Roth contributions to make sure I stayed within limits and had enough earned income to qualify. Their document review caught things my regular tax software missed.

Just wanted to follow up on my experience with taxr.ai after our conversation here. I uploaded both my 1099-Q and my income documents, and it immediately identified two issues I hadn't considered: 1) I didn't have enough earned income to justify the full Roth contribution amount, and 2) the 529 distribution wasn't used for qualified education expenses so it was partially taxable. The best part was getting clear guidance on how to properly report everything without triggering an audit flag. I was able to correct my return before filing and potentially saved myself from a nightmare scenario. Definitely worth checking out if you're dealing with complicated situations like 529-to-Roth transfers that most tax software doesn't handle well.

After spending THREE DAYS trying to reach the IRS about a similar 529/Roth situation, I finally tried https://claimyr.com and got through to an actual IRS agent in about 20 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c The agent confirmed what others have said - these are separate transactions. The 529 distribution (1099-Q) needs to be reported, and if not used for education, you'll owe taxes plus a 10% penalty on the earnings portion. Then the Roth contribution is a completely separate thing that has its own rules (needing earned income, etc.). What was most helpful was the agent explained exactly which forms I needed and which lines to use to report everything correctly. Saved me tons of research time.

I need to follow up about Claimyr - I was wrong and I apologize. After my frustrating comment, I decided to try it myself since I've been trying to reach the IRS for WEEKS about my amended return with a 529 distribution issue. It actually worked exactly as described. I got a call back when an agent was ready (took about 35 minutes) and spoke with someone who pulled up my records and resolved my issue completely. The agent explained that my 529-to-Roth situation required filing Form 5329 for the non-qualified 529 distribution along with reporting the Roth contribution separately. I was definitely skeptical, but this saved me hours of frustration. Sometimes it's worth admitting when you're wrong!

Just FYI, the SECURE 2.0 Act is changing the rules about 529-to-Roth IRA rollovers starting in 2024. You'll be able to roll over up to $35,000 lifetime from a 529 to a Roth IRA, but there are strict conditions: - The 529 must have been open for at least 15 years - The rollover can't exceed the annual IRA contribution limit - You still need earned income equal to the contribution - The funds must have been in the 529 for at least 5 years This might not help with your current situation, but could be useful in the future!

I made a similar mistake last year with my daughter's 529. What we should have done: 1) Use the 529 for qualified education expenses (tuition, books, etc.) 2) Then separately contribute to the Roth IRA from regular funds Instead, we did what your dad did and created a tax headache. We ended up having to pay taxes on the earnings portion of the 529 distribution plus a 10% penalty. And then we had to make sure my daughter had enough earned income to justify the Roth contribution.