I received a lawsuit settlement check for a stock held in a Roth. Is it okay to deposit this check in a bank account or must it be deposited back into the Roth?

[Bsch4477 · Accepted solution]

You could deposit  in your bank account or in your Roth  if you want it to be considered a contribution. It will count toward your contribution limit. 

[fanfare]

The only way funds can go into a Roth is by way of cash contribution based on earnings,

or as a conversion from a Traditional IRA.

[Opus 17]

You can’t deposit the money into the Roth in any special way. Once you put the check in your bank account it becomes mixed with all your other money, and if you want to use some of your money to make a Roth contribution, and if you meet all the requirements, you can do that.

Its possible that the settlement agent should have deposited the money directly in the Roth account for you and that it should not count as a contribution.  This is a complicated area and I don’t know all the rules.

Exactly what was the settlement for? What did the company do that was alleged to have been wrong that resulted in a settlement?

[rjs]

How much is the check for? A lot of class action settlements produce only a small payment. If the amount is small, it's not worth a lot of effort to figure out what to do with it. If you don't want it to be treated as a Roth contribution, just deposit it in your bank account and don't worry about it.

[tonyjack]

Thanks to all that replied. The settlement check was fairly large (+$500) compared to other stock lawsuit settlements I've received in the past (often around $10). I'd rather not worry about using the check as a contribution to the Roth account and the consensus seems to be that depositing the check into a bank account is okay. Not sure why the ligation folks didn't deposit the check back into the Roth as the check info includes the Roth account number. Perhaps it's because a deposit would be considered a contribution and that could cause problems for the account holders.  Thanks again to all who replied.

[fanfare]

@tonyjack 

Your IRA custodian will not accept a third-party check.