Depositing Settlement Check

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SlowMovingInvestor
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Depositing Settlement Check

Post by SlowMovingInvestor » Fri Mar 15, 2019 8:02 am

I used to own a company stock in an IRA a few years ago. The company ran into some trouble, and got hit with a securities action lawsuit. I got a check for the settlement -- not a lot of money, < $100.

The check is made out to me, also labelled with the name of the IRA management company, but NOT labelled FBO (Beneficial Ownership off) My Name. The IRA number is not mentioned anywhere.

Should I deposit the check in an IRA ? Will the IRA management company allow me to do that without counting it as a contribution ? It's not a lot of money so I am not inclined to go through a lot of bureaucratic steps to do so and might even deposit it in a regular brokerage account if allowed to do so (but I am not sure if that counts as a withdrawal).

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oldcomputerguy
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Re: Depositing Settlement Check

Post by oldcomputerguy » Fri Mar 15, 2019 8:08 am

This might help, the circumstances seem to be very similar.

https://www.deseretnews.com/article/600 ... -fund.html
"A settlement is not considered a contribution," says IRA expert Ed Slott of Rockville Centre, N.Y. "It is replacing lost value and constitutes a valid rollover to your IRA."

Slott says that you are on solid legal footing, because the IRS issued 11 private-letter rulings at the end of 2004 regarding legal settlements in connection with investments inside IRAs. Although such rulings apply only to the individual cases they address, they are an indication of how the IRS would rule in similar circumstances.
Disclaimer: IANAL, if you're really curious you might contact the IRS and ask them.
It’s taken me a lot of years, but I’ve come around to this: If you’re dumb, surround yourself with smart people. And if you’re smart, surround yourself with smart people who disagree with you.

neilpilot
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Location: Memphis area

Re: Depositing Settlement Check

Post by neilpilot » Fri Mar 15, 2019 6:51 pm

I received a $1300 settlement check payable to me and my IRA custodian in 2018. TDA had a form with a specific code that identified this as some type of adjustment, and not a contribution. It did not generate a 1099 for TY2018.

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