Our IRA funds were put in an alternative investment. That investment went bankrupt. We received a class action settlement. The settlement checks were written to Charles Schwab in our name and our new IRA account. For tax purposes, how can we make sure that this is not considered a contribution?
"The settlement checks were written to Charles Schwab in our name and our new IRA account."
If by "our" you mean more than one individual, there is no such thing as "our" IRA account. IRAs can only be owned by a single individual.
The deposit would typically be considered to be a nonreportable restorative payment to the individual's IRA. The handling would be similar to a nonreportable trustee-to-trustee transfer of an IRA where the funds are never made payable to the IRA owner. Because there was no actual distribution to roll over, the deposit can't really constitute a rollover that would be reportable on Form 5498.
Ask Charles Schwab how they are treating it so you don’t get any surprises.
What is the time frame of these events?
Generally, there is no way to add money to an IRA except as a qualified rollover, direct transfer from another IRA, or a regular contribution. However, it may be possible to use a waiver to treat these funds as a rollover, even though normal rollovers must be completed within 60 days. @dmertz
In the alternative, there would be no way to put the money in an IRA and it is just taxable income to you. However, it would not be subject to the additional 10% penalty for early withdrawal, even if you are under age 59-1/2.
Call the trustee and ask for the correct form for your purposes. I f they are not helpful, you can also open a new account elsewhere that will support your needs.
"The settlement checks were written to Charles Schwab in our name and our new IRA account."
If by "our" you mean more than one individual, there is no such thing as "our" IRA account. IRAs can only be owned by a single individual.
The deposit would typically be considered to be a nonreportable restorative payment to the individual's IRA. The handling would be similar to a nonreportable trustee-to-trustee transfer of an IRA where the funds are never made payable to the IRA owner. Because there was no actual distribution to roll over, the deposit can't really constitute a rollover that would be reportable on Form 5498.