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Redeposit IRA settlement tax-free

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in Small Business Tax

Q: I expect to receive a settlement from a securities firm relating to my IRA investments. Can I transfer the funds back into my IRA? K.H., Montclair, N.J.

A: Yes. A legal settlement generally qualifies for rollover treatment under the regular rules. In other words, you won't owe any current tax if you transfer those funds into your IRS within 60 days. If you go beyond the 60 days, the settlement would be treated as a taxable distribution. Tip: Any portion of the settlement representing punitive damages is subject to tax.

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