Bankrupt IRA investment
Working with a client who has lost $345000 of their IRA due to a bankrupt Real Estate investment
Accounts have gone to zero for he an his spouse. Happened November of 2017.
He is 67 she is 63.
They have been notified that they will receive a settlement of approximately $170000 from an SEC procured
settlement to be paid quarterly
Question is this: When the money comes back to them is it still IRA money as you cannot make a contribution of this much to an IRA?
How will this money be treated under tax law?
Thank you for your help
Permalink Submitted by Alan - IRA critic on Wed, 2018-11-21 14:49
These are likely restorative payments. SInce the investment was held in an IRA, these checks should be made payable to client’s IRA, the same IRA account if that account is still open. The IRS treats these as non reportable transfers, and client would typically indicate “for deposit only” on the back of the checks when received and forward it to his IRA custodian. This is not a taxable event if done correctly. However, client should confirm with the attorney that handled this that the settlement is a restorative payment per RR 2002-45 as later extended to IRA accounts. Sometimes these notifications overlook the fact that some of these investments were held in retirement accounts, but the notification should have a phone number to address questions or hear a recorded message.