Proceeds from a Legal Settlement involving an IRA

[angelabryant921]

I am a financial advisor. I have a client who invested $89,000 of IRA funds in a Private Placement investment that turned out to be fraudulent (I was not her advisor then, by the way). Through a legal settlement, she has received approximately $26,000. My question is:

Would this be conisdered a return of her investment and therefore need to be deposited back to her IRA in order to avoid taxation? Or, would it be considered legal proceeds and therefore become personal assets that are no longer considered to be part of her IRA?

Thanks,

Angela Bryant

 

[wayneparsons]

Legal Settlement

The settlement is a return of capital. You can't roll it back into her IRA. Please call me about possible theft loss issue given type of IRA and tax treatment of the money when distributed. Don't forget to deduct any legal fees to get the money back.
972-839-0456 see?