Tax Guru – Ker$tetter Letter

Q:

Subject:  Class Action Settlement – IRA qualified?

 

Kerry –

 

I recently received a payment from a prior employer as a consequence of a class action discrimination suit. The payment had deductions made for Social Security, Medicare, Federal and State income taxes. This strongly suggest to me that the payment is being treated as “back wages.”

 

My question is this. Can I make an IRA contribution based upon the monies received in this settlement? I am presently retired and do not have earned income with which I might otherwise qualify for an IRA contribution.

A:

It certainly sounds as if they will be reporting the income on a W-2, which will make it eligible to be treated as earned income for IRA purposes.

You didn’t specify your age.  If you are or will be over 70.5 during this year, you will not be allowed to contribute a traditional deductible IRA; but a Roth IRA is still possible.

Your personal professional tax advisor will be able to provide you with more specifics for your particular situation.

Good luck.
 
Kerry Kerstetter