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Mutual Fund class action settlement
Old 07-14-2020, 08:36 AM   #1
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Mutual Fund class action settlement

I own a mutual fund (name is irrelevant) in an IRA. There was a class action settlement against the mutual fund. My questions are:
1. If i take the settlement as a check, is that considered a taxable distribution from an IRA?
2. If I have the settlement check sent directly to my IRA, is that considered a contribution, transfer, or rollover?
3. None of the above. the settlement check is outside the scope of the IRA.

The settlement is likely to be very small and I don't a small amount of money to create a big hassle for me.
Your thoughts are appreciated.
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Old 07-14-2020, 08:52 AM   #2
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If the amount is small, you probably won't get a 1099 and as a practical matter you can do anything you want. It's even possible that the check will answer your question if it is made out both to your custodian and to you. If you do get a 1099, just do whatever the 1099 indicates.

Unless you are doing something wild and crazy elsewhere in your financial life, IMO the probability of an IRS audit is approximately zero.
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Old 07-14-2020, 08:58 AM   #3
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Quote:
Originally Posted by The Rodent View Post
I own a mutual fund (name is irrelevant) in an IRA. There was a class action settlement against the mutual fund. My questions are:
1. If i take the settlement as a check, is that considered a taxable distribution from an IRA?
2. If I have the settlement check sent directly to my IRA, is that considered a contribution, transfer, or rollover?
3. None of the above. the settlement check is outside the scope of the IRA.

The settlement is likely to be very small and I don't a small amount of money to create a big hassle for me.
Your thoughts are appreciated.
Interesting, I'm eligible for a settlement from the fund management team of an employer managed fund.This is what I believe based on some information I received from the attorneys.

1. I believe so. I was told I could accept it as if I had withdrawn it or if I wanted it could be injected back to my 401k.

2. I didn't ask the question but I think it can be put in your IRA and not be a contribution see above.

3. I'm not sure what you are asking

Did we w*rk together? If we did there's also a settlement from Megacorp that's outstanding, those numbers are much better than the first settlement according to a friend who has gone through arbitration.
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Old 07-14-2020, 09:24 AM   #4
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I researched this a few weeks ago when we got notified of a class action about a stock that we own in one of our IRAs and they asked on the claim form how we would want the check made out. One of the options was to have it made out to the IRA custodian. I found this article, which has some good references to IRS rulings: https://www.morningstar.com/articles...ings-to-an-ira

My conclusions based on the above were:
1. Yes, it would be a taxable distribution if you have it made out to you. You probably won't get a 1099, because the fund and the IRA custodian are unlikely to connect the dots and figure out that they should issue one, so it's on you to report it.
2. If you put the money into your IRA within 60 days, then it's an allowed rollover or "restorative payment" and is not taxable.

In the end, I decided not to file a claim in our case. The amount of paperwork required was extensive, and it turned out the estimated amount we'd collect was less than $20.
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Old 07-14-2020, 09:25 AM   #5
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Originally Posted by OldShooter View Post
If the amount is small, you probably won't get a 1099 and as a practical matter you can do anything you want. It's even possible that the check will answer your question if it is made out both to your custodian and to you. If you do get a 1099, just do whatever the 1099 indicates.

Unless you are doing something wild and crazy elsewhere in your financial life, IMO the probability of an IRS audit is approximately zero.

Appreciate your practical approach. If I deposit the check into the IRA, wouldn't that be a "contribution"? I'm not eligible to make contributions to an IRA.
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Old 07-14-2020, 09:28 AM   #6
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Appreciate your practical approach. If I deposit the check into the IRA, wouldn't that be a "contribution"? I'm not eligible to make contributions to an IRA.
@Rodent, you're making this too hard. Please re-read the first and last sentences of my post.
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Old 07-14-2020, 11:17 AM   #7
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Originally Posted by cathy63 View Post
I researched this a few weeks ago when we got notified of a class action about a stock that we own in one of our IRAs and they asked on the claim form how we would want the check made out. One of the options was to have it made out to the IRA custodian. I found this article, which has some good references to IRS rulings: https://www.morningstar.com/articles...ings-to-an-ira

very good reference, thanks
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