ASK KIM
Settlements Can be Added to IRAs
by Kimberly Lankford

I received a settlement from Lucent Technologies. I owned the stock in my IRA, and the check is made out to me and Vanguard, my custodian. Do I cash it or send it to Vanguard?

We called Vanguard about your situation, and the company agreed to accept the check and tuck the money back into your IRA.

Endorse the check and send it to Vanguard with instructions to roll it into your account. "A settlement is not considered a contribution," says IRA expert Ed Slott of Rockville Centre, N.Y. "It is replacing lost value and constitutes a valid rollover to your IRA."

Slott says you are on solid legal footing because the IRS issued 11 private-letter rulings at the end of 2004 regarding legal settlements in connection with investments inside IRAs. Although such rulings apply only to the individual cases they address, they are an indication of how the IRS would rule in similar circumstances.

Tax Help if You Sold AT&T or Lucent

Last year, I decided to get out of AT&T and Lucent and sold all of my shares, which weren't in an IRA. Now that I'm working on taxes, I'm regretting that move. How to I figure out my cost basis?

You're in for quite a workout. Since AT&T has had so many spin-offs through the years, and its progeny Lucent has had several spin-offs of its own, you'll need to set aside some time before April 15th and do quite a bit of math.

AT&T's investor relations Web site has an entire section devoted to helping investors figure out their tax basis after all of the various spin-offs and splits, including worksheets, frequently asked questions and detailed explanations of what happened during each of these events.

Lucent had its own share of events that complicate the tax-basis calculation after it spun off from AT&T. For a worksheet that can help you figure out your cost basis in Lucent -- and its own spin-offs -- see the tax basis page on Lucent's investor relations Web site.

Good luck!