Combined settlement payment for a Roth and Traditional IRA

Submitted by Jennifer Hansen on Wed, 2023-10-18 19:30

If someone has a loss for the same cause in a Roth (amount X) and Trad IRA (amount Y) and obtains a restorative payment as one settlement payment for both losses (where payment < X + Y), it seems like the default would be to return it proportionately to the two accounts.

But is there an argument that could be made where the person could return up to the amount of X into the Roth and then put any remaining into the Traditional IRA?

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Permalink Submitted by Alan - IRA critic on Wed, 2023-10-18 20:37

The legal firm should not issue a combined check because these are different types of IRAs. Separate checks should be issue payable to the TIRA and Roth accounts respectively.
That said, it would make no sense to attempt to deposit more than the proportinate amount into the TIRA as that would eventually result in double taxation. Likewise, the IRS certainly would not approve of a disproportionate amount being deposited to the Roth account as that would amount to a tax free conversion.