Suit Settlement check deposited into 72T
A client has received a $500 settlement check from a class action suit that is made out to her IRA Rollover. She is currently in the 3rd year of a 5 year 72 T distribution plan. Will depositing this check bust the 72T or will it be considered something like a dividend payment or something miscellaneous?
I know you can’t contribute new money to a 72T IRA, so we don’t want to do anything to draw the IRS’ attention.
Thanks.
Mike Terry
Permalink Submitted by Alan Spross on Fri, 2008-05-02 04:55
Fortuneately, these settlements do not generate a 1099R or 5498 if handled in a routine manner. That said, if it does generate one, it may be difficult to get the IRS to view this as a replacement rather than a contribution since technically the liability may well have resulted prior to the inception of the 72t plan. The client may be understandably nervous and may want to verify now with the class action counsel that no 1099R will be issued and with the IRA custodian that no 5498 will be issued.