Litigation Settlement on old IRA Stock


T

Tom from WI

I received a check for $750 a few days ago from a law office. It was the
settlement for a class action suit against TXU, a stock that I held in an
IRA. I can't put the funds back in the IRA since I have retired and no
longer have an income. Do I have to treat this money as a withdrawal from
the IRA and pay taxes on it? Or, since it is a litigation settlement, is it
free from taxes. The letter said "Be advised that all applicable taxes have
been paid on the interest earned by the fund while it was invested pending
distribution". I believe the "fund" is the Net Settlement Fund resulting
from the litigation.

Tom
 
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P

Phil Marti

Tom from WI said:
I received a check for $750 a few days ago from a law office. It was the
settlement for a class action suit against TXU, a stock that I held in an
IRA. I can't put the funds back in the IRA since I have retired and no
longer have an income. Do I have to treat this money as a withdrawal from
the IRA and pay taxes on it?
The check (and your claim) should have been in the name of the IRA, not
yours. This money is earnings that belongs in your IRA, to be taxed when
withdrawn.

The easiest thing to do is deposit it in your IRA as a rollover. You have
60 days. Otherwise you have to get the check reissued to your IRA or treat
it as a taxable distribution from your IRA.

Information about rollovers is in IRS Publication 590.
 

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