Hello group. First time poster, short time reader. Someone at the Bogleheads forum referenced this board and I have reviewed several threads that have many similarities with my issue. I have received some initial guidance from that forum, a direct message with Alan S., my tax advisor, and Fidelity but I felt it was prudent to post here and see if I can get some final direction. Here is my scenario:

I made a non-deductible TIRA contribution to an IRA held at Ameriprise in 2022. In early 2023, we overhauled our finances and moved out of Ameriprise and migrated to Fidelity. This TIRA balance (worth around $5500 at the time of transfer) went to a TIRA I had opened at Fidelity. I then wanted to be able to conduct backdoor ROTH maneuvers so I set out to clear the TIRA balance forgetting that it was a non-deductible contribution (and that I could have simply converted that amount – I was financially ignorant in 2022 and didn’t understand that this was a ND contribution). So opened a Solo 401k to use for my self employment income as well as a vehicle to clear the TIRA balance. I moved the $5500 into the Solo 401k, again, not understanding this was a ND contribution and also not understanding that ND can’t move to 401ks.

This basis has sat in my Solo 401k since early 2023. I have not made any contributions so the entire balance of the account is the original basis of $5500 plus gains; the current value is $6800.

As I was preparing taxes this year for 2023 (first year that I have attempted to do taxes on my own) I discovered this 2022 carryover basis which led to this whole discovery.

As it stands now, I have had multiple conversations with Fidelity but have yet to execute any maneuvers until I have clarity on what to do. My understanding is that the best way to try to solve this is to have the balance removed as an excess of contributions. Fidelity is on board with this and is willing to distribute the funds with a letter of instruction from me, the Plan Administrator, giving explicit direction on what to do. They are capable of removing the basis plus gains but the funds must be moved to a non-retirement account, such as my brokerage account held at Fidelity. This would generate a 1099R, Code E – I believe – to use on 2024 tax filing.

So a few questions:

1) Is this the best approach?
2) With a 1099R, Code E, will I be taxed on the whole balance or just the gains? Does this get reported for 2024 taxes or do I try to reconcile for 2023 – I have yet to file for 2023.
3) Once these funds are in my brokerage account, what options do I have then? Is it just a cash asset to be used however I wish and just accept the loss of this basis working in a retirement vehicle? Or is there a way to get the money back into the TIRA (60 day rollover perhaps?) and potentially convert that to ROTH? I am going to guess this is not possible otherwise I would have simply have done a roll-over to the TIRA directly if that were an option.
4) Do I continue to enter $6000 carryover basis on Form 8606 indefinitely? Or can I simply stop entering it as I move forward or would this attract attention from IRS? Or if there is a way to get the funds back into the TIRA and then convert to ROTH, would that somehow use up any of the basis? I read on another thread that I could keep making ND contributions and not converting for several years until I have enough gains to use up the $6k basis and then convert the entire TIRA to ROTH. I already contributed and converted for 2024 so I could start this process in 2025 – I’m guessing it would take at least 6 years to earn enough. Is this preferred?

If you need any more information please let me know. I really appreciate any feedback and value your time and expertise. Thank you.