An IRA owner with an existing Section 72(t) plan (adopted in 2022, the “Plan”) recently received a notice that a security previously held in the IRA (prior to the adoption of the Plan) was the subject of a Class Action Litigation Settlement (the “Settlement”). As a result, the IRA may now be entitled to receive monetary damages pursuant to the Settlement after the adoption of the Plan.

Rev. Rul. 2002-62, Section 2(e) states that a modification to the series of payments will occur after the first valuation date, if there is “(i) any addition to the account balance other than gains or losses,…”

IRS Notice 2022-6 Section 3.02 Other Rules (e) Changes to account balance, revises the language and states “any addition to the account balance other than by reason of investment experience,..”

Any views on whether amounts received as damages would be deemed to be an addition to the account balance as a gain or a recovery of a prior loss, or by reason of investment experience? Alternatively, could the recovery be deemed to be a modification of the Plan?

Thanks in advance for any guidance provided.