Class Action Settlement Roth Ira reportable?

Forum|Forum|3 years ago
December 9, 2022
2 replies
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I rec'd a class action settlement check for approx $50.00 for my Roth Ira account. Fidelity will code it as a deposit only not a contribution. Do I need to report it as misc income?

Best answer by Mike9241

These proceeds are called "restorative payments" and the IRS has ruled that they can be transferred back into the account that incurred the losses as a non reportable direct transfer that is not treated as a contribution. If the IRA account in which the loss occurred is still open, the payment should be transferred to that account. The ease of depositing the payment check into a different account may depend on how the payee reads on the check. In many cases the account that incurred the loss has been closed, and the IRS does not have an issue with the check being deposited elsewhere if the check is made out in a form that the new custodian can accept.

Anonymous_

Level 15

@Mike9241

Mike9241

Answer

Level 15

Mike9241

dmertz

Level 15

... and no, it's not reportable as miscellaneous income. If not deposited in to a Roth IRA as a restorative payment it must be treated as a Roth IRA distribution. (A $50 Roth IRA distribution would almost certainly be a distribution from your contribution basis and therefore would be reportable but nontaxable.)