topic 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? in Retirement tax questions

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?

tonyjack — Thu, 21 Oct 2021 18:21:02 GMT

Re: 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 — Thu, 21 Oct 2021 19:15:32 GMT

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.

Re: 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?

fanfare — Wed, 20 Aug 2025 23:04:22 GMT

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

or as a conversion from a Traditional IRA.

[corrected]

Re: 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?

Opus 17 — Fri, 22 Oct 2021 01:27:35 GMT

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?

Re: 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?

rjs — Fri, 22 Oct 2021 03:11:29 GMT

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.

Re: 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?

tonyjack — Fri, 22 Oct 2021 10:55:06 GMT

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.

Re: 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?

fanfare — Fri, 22 Oct 2021 23:50:47 GMT

@tonyjack

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

Re: 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?

Rhema — Sun, 17 Aug 2025 08:16:57 GMT

The answers on this page are incorrect at least in the year 2025. The lawsuit settlement check is a restorative payment that can be treated as a non-taxable event - a transfer to the Roth IRA.

This correct answer is provided in other forum discussions on the same topic.

@tonyjack