IRA Conundrum
$40,000 investment made from traditional IRA account went bad. Financial Advisor sued, and attorney recovered $18,000, which was wired into non qualified checking account. Understand that a 1099 will be sent, making the entire $18,000 subject to immediate tax.
Is there a way to return the $18,000 to the IRA where it came from and truly belongs? That way it will be taxed as part of RMD’S taken annually.
Thank you.
Permalink Submitted by Alan - IRA critic on Sun, 2022-06-12 00:01
Permalink Submitted by Mel Langer on Mon, 2022-06-13 06:10
Thank you for the explanation. If I returned the settlement payment to the attorney, and had them wire the money directly into my IRA, would that solve the problem? Then it would be a non reportable restorative payment. And the only thing I’d have to worry about is the attorney inadvertently sending me a 1099 for the money I’m returning. I am a little confused about paragraph 3 of your reply. My view is that if this $18k can get back into my IRA, then it becomes part of the IRA balance subject to a RMD. Said another way, when the loss of $40k occurred, then that amount reduced the IRA balance, and only what remained was subject to the RMD. If the $18k can get back into the account, then that will add to the balance, and of course be subject to a RMD…which is the way it should be. As always, appreciate your input.
Permalink Submitted by Alan - IRA critic on Mon, 2022-06-13 14:30