WWYD – “Vintage” Stock Grant Morphed to Custodial IRA, But Distributions Have Been Taxed

This is puzzling and I'm unsure what to do or if I should just leave it alone. I posted the other day about $30K in stock being accidentally transferred to an IRA and got clarification that in fact that stock account was transferred electronically and was coded as an IRA. Good news?

This stock grant was from AT&T circa 2002. For years we took the dividends from that stock, then at some point started reinvesting the dividends. We have always been taxed on them as qualified dividends.

When my husband initiated transfer he discovered that they were in a custodial account with Fidelity being the custodian. Custodian accounts are for minors. My husband was not a minor when he received these, nor has he become one since. The Compushare statement has my husbands name then the second line is Fidelity/IRA.

There is an error here somewhere. Compushare was not much help with why this was custodial. We paid average $400 a year in taxes x 23 years = $9200. We saw a long term gain of about $22,000. Now it is rolled into an IRA and we will have to pay 25%ish when we take it out. If we were taking money out of an IRA pre-59 1/2 for 23 years then we would have to pay penalties on that?

So, what to do? Either is isn't an IRA and we have to fix the transfer (and the stock has been sold within the IRA) or it is an IRA and they have been taxing us incorrectly. Fidelity says it is coded as an IRA during an electronic transfer from Compushare and that is irrefutable .

I know this seems like a really specific thing, but wondering if anyone has had any similar issues like this or even one part of this ss or sees something I'm missing that might be important. My inclination is to walk away from it and let the chips fall where they may because I'm not sure I can even fix it at this point. Thanks!