Fidelity made a mistake on my roth rollover

Forum|Forum|4 years ago
March 2, 2022
10 replies
87 views

When I left my previous employer, I converted all my roth 401K to fidelity to IRA, but Fidelity put it in a pre-tax IRA account. Several months later, when I found out about this, I called Fidelity and they asked me to roll it over to roth IRA account and I did. Now I received tax form asking me to pay tax on this conversion which I already did at first. I have the document from my previous 401k provider to prove the money was after-tax contribution. Fidelity doesn't want to fix this for me and they pointed me to tax advisor/CPA. Can anyone tell me how to do this in Turbotax? (Prefer not to work with another CPA/tax advisor since I have filed the rest of my tax in turbotax).

Thanks!!!

Best answer by dmertz

I just talked to Fidelity again and they refused to correct the tax form for me.

They asked me to file form 5329 and saying this should prevent me from being double taxed.

I am not sure if I should be using form 5329 or form 4852 as you recommended earlier, can you please advise?

Thanks!!

It's not surprising that Fidelity would not change the Form 1099-R. Given that the funds were already in a traditional IRA (albeit impermissibly), it's reasonable that when asked to move the money to a Roth IRA that the only apparently available way to do that would be by a taxable Roth conversion.

As I said previously, the only legal way to have corrected the original error would have been to process a return of contribution from the traditional IRA and to make a late indirect rollover of the original distribution from the Roth 401(k) by self-certification that this rollover would qualify for a waiver of the 60-day rollover deadline. The substitute Form 1099-R (Form 4852) needs to replace the original code 2 Form 1099-R with one with codes 1 and P instead. However, it's beyond the scope of this forum to address the details of properly correcting the errors that occurred one after another, with each transaction making the problem worse.

dmertz

Level 15

Fidelity should not be reporting this as a Roth conversion. Because a traditional IRA is not eligible to receive a rollover from a Roth 401(k), the deposit in to the traditional IRA was an excess contribution. What Fidelity should have processed is a return of contribution from the traditional IRA and a rollover (not conversion) to the Roth IRA of an amount equal to the amount of the original distribution from the Roth 401(k). If there were any earnings while in the traditional IRA, these could not be rolled over and would be subject to tax and possible early distribution penalty.

If there were gains while in the traditional IRA, some amount that was moved to the Roth IRA should not have been. Those gains deposited into the Roth IRA must be treated as an ordinary regular Roth IRA contribution.

Correcting this in TurboTax would require creating a substitute Form 1099-R showing a return of excess contribution instead of code 2 or code 7 for a Roth conversion.

However, be sure that your rollover was from a Roth 401(k) and was not just a rollover of after-tax money from a traditional 401(k) account. What is the code in box 7 of the Form 1099-R from the 401(k) plan administrator?

Anonymous

Thanks for your reply!

The code on the box 7 of the form 1099R is 2.

As of now, should I ask Fidelity to create a substitute form 1099R for me? Is this the best solution?

If they don't, should I still file the tax without this form (but can possibly get audit by IRS)?

dmertz

Level 15

I think the code 2 Form 1099-R is the one reporting the conversion from the traditional IRA to the Roth IRA. I'm asking about the other Form 1099-R, the one that reports the distribution from the 401(k) and does not have the IRA/SEP/SIMPLE box marked. What is the code in box 7 of that Form 1099-R? Does that Form 1099-R have a nonzero amount in box 5?