Help! Backdoor got screwed up by Fidelity's wrong advice

[Taxger]

Hi, 

I did backdoor IRA in early 2023. Because I'm no longer in my previous company, Fidelity usually called me to close my previous company 401K account to transfer to my personal accounts (traditional IRA).

They guaranteed no tax events will happen. However, my CPA just told me because of the transfer, my traditional IRA's balanced increased from $0 on 1/1/2023 to $100k on 12/31/2023, made my backdoor IRA contribution invalid, and I have to pay IRA tax!

Anyone knows what I can do, or push Fidelity does to fix this issue? 

Thanks a lot!

[dmertz · Accepted solution]

Fidelity was correct that the rollover from the 401(k) was not itself taxable.  Fidelity has no responsibility to determine if having a nonzero balance in traditional IRAs has any effects on the taxability of a traditional IRA distribution.  Saying anything with regard to that would be considered tax advice and for tax advice they instruct you to consult with a tax professional (your CPA) because Fidelity does not give tax advice.

There is nothing that you can do to change the taxability of the 2023 Roth conversion.  The result is that only a portion of your Roth conversion is nontaxable an a significant amount of your basis in nondeductible traditional IRA contributions remains in your traditional IRAs to be applied proportionately to future distributions, so most of the benefit of having made the nondeductible traditional IRA contribution will be realized in the future.

If you have a 401(k) plan at your current employer, perhaps in 2024 you can roll over to that plan whatever amount in your traditional IRAs exceeds your remaining basis in nondeductible traditional IRA contributions so that you can that convert the rest to Roth tax free.

[fanfare]

A conversion to Roth IRA made after December 31, 2017 cannot be undone, even when you find out after the fact, that your other actions were counterproductive.

Congress had you in mind when they changed the rules at that time.

@Taxger