No. The worst-case scenario is none of the payment was restorative and it is all taxable. Reporting the entire deposit as a Roth distribution, which would be non-taxable in your situation, is, in fact, the "Best Case Scenario". Hopefully you received some documentation outlining the nature of the payment.
As Dmertz alludes to, only the "Restorative" part of the payment could be reported as a Roth distribution and be non-taxable in your situation.
According to IRS Revenue Ruling 2002-45, to be restorative, the payment cannot exceed the amount of the loss plus any appropriate earnings adjustments. Anything over that amount, punitive payments, for example, could not be restorative.
Any non-restorative amounts would generally be taxable income. If you get some kind of form 1099 you will enter that form just as you received it and then as Opus17 notes "back out" of taxable income the restorative (non-taxable) part as a negative "Other Reportable Income" entry (Steps below).
Conversely, if you do not get a form 1099 but your paperwork shows some or all of the payment is non-restorative, you would add that taxable income as "Other Reportable Income" on your return (Steps below).
Finally, if the payment is all restorative and you did not get any forms 1099 for the amount, then don't enter it on your return at all and then as Opus17 states, keep the paperwork to support your action should it ever come up.
- Select "Wages and Income" from the menu
- Start "Miscellaneous Income"
- Start "Other Reportable Income"
- Yes
- Add
- Description - Identify what you are doing.
- If "Backing out" a form 1099 amount, then for example "Restorative Roth settlement (Form 1099-XXX) and then enter a negative amount in the amount box.
- If no form 1099 received, then "Roth Settlement" and enter the positive (taxable) income portion in the amount box.
7. Continue
**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
