Interesting question. I am going to do some research and get back to you shortly with some answers.
FYI...the legal firm that sent me the check said they were not directed to send a 1009R or 1099Misc....
"Thank you for your inquiry. However, Gilardi & Co LLC is not a licensed tax advisor. Since the taxable nature of settlement distributions varies based on the individual settlement and nature of the original account, you will need to consult your tax advisor to determine the tax consequences, if any, of your distribution. We did not have a 1099 reporting requirement in this matter."
Since it has been less than 60 days you can recontribute the funds free from penalty. (i.e. it will not be considered a distribution)
This was their response when I asked about how I was supposed to handle the check
Even though I deposited in my Checking account?
What records would I need to give to the IRA custodian to insure that they handle it as a rollover?
And how do I know that it is actually supposed to be rolled over? and that it is not a tax free recovery?
Are you still there?
Sec. 402(c)(1) allows an individual to receive an eligible rollover distribution (which is what you have) from an IRA without being subject to current income taxation or premature distribution penalties if the individual transfers such distribtion to another eligible retirement plan, such as another IRA or the same IRA, within the 60-day period beginning on the distribution receipt date. Such a "rollover" can be done only once during any 12-month period.
Yes still here. Just getting support for the answers.
OK....so there is no doubt that this is supposed to be rolled over and that it is not a tax free distribution?
Basically since the receipt of the check is less than 60 days the distribution will not be a taxable "distribution" so long as you contribute the amount back to the IRA with in 60 days.
Well..Ok..since the cash is in the bank...what records will I need to give the IRA custodian so that it is recorded as a rollover and not a new deposit?
so there is no doubt that this is supposed to be rolled over and that it is not a tax free distribution? - It depends on what you do with the funds. If you keep it in your savings then it is a taxable distribution. If you put it back to the IRA within 60days of receipt it is basically a "rollover" that never really happened. (i.e. not taxable)
what records will I need to give the IRA custodian so that it is recorded as a rollover and not a new deposit? - I would suggest providing the initial purchase record of the investment then the class action documents and a copy of the settlement. This proves the investment was in your IRA and that your IRA should have received the funds. I would then suggest writing a short memo to the IRA custodian detailing the facts and why the amount is not considered a distribution. (i.e. because the settlement funds should have been received by the IRA and you erroneously deposited the funds into your personal account.) Since the 60 day window under IRC 402(c)(1) has not passed the amount should be considered as a non taxable distribution nor a tax deductible distribution etc. etc.
Sorry - tax deductible "contribution"
Here is a private letter ruling that would further support this position - http://www.irs.gov/pub/irs-wd/1221037.pdf
I wonder why Schwab was giving me a hard time with this?
Most of the investment advisors are tax accountants so they just go off the norm. I think if you got to speak with a CFA or CPA at Schwab then your experience would have been different.
Regardless of what they give or report to you, you can file your return however you wish. (i.e. not report it as a distribution nor a contribution)
I see the brokers make mistakes all the time and they generally don't correct them unless it is very significant.
How much are we talking about here?
SO, you are saying, when I file my taxes (based on my successful rollover) that I don't have to file anything related to the rollover?
Yes, I don't believe you have to report anything but let me double check the forms. One moment.
Yes nothing to report here.
OK.....How I save this conversation so I will have it for reference?
Just save the link in your web browser. You can return to it at any time.
Ok...thanks for your help....
I am looking into the reporting requirements here and if you get a 1099R from Schwab then you should report the amount on your 1040. This is done by reporting the amount on line 15a of your IRS Form 1040 (tax return), and then indicating zero on line 15b. (i.e. not taxable)
No problem. :)
Well..I suspect that I would not get one from Schwab.....since they would never had known about the settlement.....correct?
The check came directlt to me.
Correct, my assumption as well. I just wanted to tell you this though in the event you did get a 1099R.
OK....I appreciate it....
Nothing that I can thing of.
If I think of something else I'll post it and you should get an email stating that I made another post.
OK..thanks I appreciate the help...you have confirmed what I hoped would be the case...If I had to pay taxes on the distribution they would have been significant.
Yeah the penalty alone would be
Well...I am 60...so no penalty...but the taxes could have been high....Ii may have bumped up my tax bracket
OK...that should do it.....bye