class action settlement

L1: class action settlementI posted on 2/22/05 concerning a check I received from a class action settlement. I deposited the check in my IRA and it was coded as a “Transfer of Assets”. Is this okay? I’m taking SEPP payments from this IRA. I spoke to a Fidelity IRA expert on 2/22 and he said there should be no problem with my SEPP. I called back again today and now their official line is since there is no specific IRS mention of this occurance I should check with a tax advisor.
Mike2005-05-06 13:10, By: daddy0, IP: [24.44.124.155]

L2: class action settlementCoded as a Transfer of Assets, probably not Ok, but I agree you should contact your tax advisor. Much may depend on the terms of the class action suit. Maybe Bill will be able to offer more.2005-05-07 06:04, By: Gfw, IP: [216.80.64.228]

L2: class action settlementThe check was made out to my IRA so obviously it should have been deposited inmy IRA. The form Fidelity uses has no code that fits this transaction. Even if they used the wrong code it would seem unreasonable for the IRS to use this to break my 72(t). When I originally posted about this I was advised to make sure it wasn’t coded as a contribution and at least they didn’t do that. At this point what can I do?To withdraw the money would just raise red flags with the IRS. Fidelity told me that the deposit would not be reported to the IRS so they won’t even know about it unless I’m audited. I just hate to have this hanging over my head.
Mike2005-05-07 07:17, By: daddy0, IP: [24.44.124.155]

L2: class action settlementHello Mike:
Obviously, earlier you owned some asset in the IRA; e.g. Enron ro Worldcom, etc. for which you are now receiving a class action settlement check.
In essence, this check represents “earnings” (or more probably reduction in loss) to your IRA. Further, since there is no code for earnings; coding this deposit into your IRA as a transfer of assets is correct.
Next February you may get a 1099R from the setllement trust in which you simply report that 1099R on line 15a of 1040 and a zero on line 15b.
TheBadger
wjstecker@wispertel.net
2005-05-07 10:03, By: TheBadger, IP: [66.250.23.21]

L2: class action settlementHi Badger:
Thanks, I feel much better now. I didn’t think about getting a 1099 from the settlement fund but it makes sense. I has thought about not depositing the check but if had done that and they sent the 1099 I probably would have been in trouble.
Thanks again for your help.
Mike2005-05-07 16:15, By: daddy0, IP: [24.44.124.155]

L2: class action settlementBadger:
Will this transaction show up on Form 5498 (IRA Contribution Information) that Fidelity will send to the IRS in Jan?
Mike2005-12-10 07:09, By: daddy0, IP: [69.120.56.189]

L2: class action settlementHi Mike:
If you will identify what security (stock, bond, mutual fund, etc.) generated the class action, it might helpdevelop a more definitive answer to your question. Since class actions involve more than one person, there must be more people reading this with the same question you have raised.
Jim2005-12-12 08:44, By: Jim, IP: [70.184.1.35]

L2: class action settlementBadger:
The stock was Just for Feet. I’m embarassed to admit that I owned this stock. The class action suit was filed in 1999 or 2000. It took that long to get any money. I would be stunned if someone else reading this message board owned this stock.
I’m just worried that the IRS will be notified of the addition to my account and think I broke my 72t. I have the documentation to prove where this addition came from but I would rathernot attract any attention. Especially since I used an interest rate a little greater than 120% of the treasury rate. Unfortunately in 1999 when I started the 72t I don’t think this 120% rule was anywhere in Publication 590 so how was I supposed to know about it? 8% was specifically mentioned so that’s what I used but it looks like I should have used 7.79%. I’m happy to get that rant off my chest.
Mike2005-12-13 06:26, By: daddy0, IP: [69.120.56.189]

L2: class action settlementPlans that were implemented prior to Rev.Rul. 2002-62 generally had a maximum interest rate equal to 120% of the Long Term AFR rather than today””s 120% of the Mid-Term AFR.
There were a few PLRs that mentioned specific interest rates like 8%, but you really had to have looked beyound the wording of the PLR to the actual rates applicable when the PLR was requested. At any rate if 120% of the long-term rate was in the range of the 7.8% to 8% you probably shouldn”t have a problem because of the rate- just be ready to document (as always) where the rate came from.2005-12-13 06:35, By: Gfw, IP: [172.16.1.72]

L2: class action settlementGood morning Mike:
I had to use Google to find anything about your defunct stock, Just for Feet (JFF) since it is no longer listed. And since documentation will be very important for you, especially if audited, I found a news release from the Dept of Justice dated February 25, 2004, which should pretty much explain your case. Here’s the link
http://www.usdoj.gov/opa/pr/2004/February/04_crm_110.htm
What a story. Small, one-store business in a small town grows to national prominance, then greed takes over and the collapse follows. This is an interesting read.
Jim2005-12-13 08:12, By: Jim, IP: [70.184.1.35]