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arejfour
Level 2

Class Action Settlement Roth Ira reportable?

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?

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Mike9241
Level 15

Class Action Settlement Roth Ira reportable?

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.

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3 Replies
tagteam
Level 15

Class Action Settlement Roth Ira reportable?

Mike9241
Level 15

Class Action Settlement Roth Ira reportable?

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.

dmertz
Level 15

Class Action Settlement Roth Ira reportable?

... 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.)

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