New COVID-19 Stimulus Law Does Not Extend CARES Act CRD Relief
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By Ian Berger, JD There’s been some confusion about the retirement plan aspects of the COVID-19 stimulus package signed into law on December 27, 2020. One national news network has reported that the new law extends the CARES Act tax breaks for coronavirus-related distributions (CRDs) into 2021. This is incorrect! At least for the moment, CRDs are no longer available. The new law does include retirement plan tax breaks for non-COVID-19 disaster declarations, like fires or hurricanes. Those breaks are the same breaks Congress provided in prior disaster relief legislation and in the CARES Act for CRDs. Individuals affected by a declared disaster (other than COVID-19) can take up to $100,000 of “qualified disaster distributions” annually from IRAs and company plans. The distributions would be exempt from the 10% early distribution penalty, taxable income could be spread ratably over three years, and the distribution could be repaid within three years. The legislation also includes the same relief for plan loans made on account of a covered disaster that we saw in prior legislation. The limit for plan loans is doubled to $100,000 (but no more than 100% of the vested account balance). In addition, loan repayments due in the 180-day period after the disaster can be suspended. Again, none of this relief applies to COVID-related distributions or loans taken in 2021. The new law also does not extend the waiver of required minimum distributions (RMDs) into 2021. So, for 2021, RMDs will once again be due. There is no need to “make up” the 2020 RMD that was waived. Simply proceed into 2021 as if the 2020 waiver never happened. Calculate your 2021 RMD using your 12/31/2020 balance like any normal year. The stimulus package does provide one retirement-related perk. It extends the 7.5% threshold for deductible medical expenses into 2021 and future years. (The SECURE Act had temporarily extended the 7.5% threshold for 2019 and 2020 only.) There is a 10% early distribution penalty for under age 59 ½ IRA or plan withdrawals. But the penalty doesn’t apply if the withdrawal is for medical expenses that the IRA owner or plan participant could deduct on her tax return if she were itemizing deductions. Since medical expenses can be deducted if they exceed 7.5% of adjusted gross income, withdrawals for expenses higher than the 7.5% threshold can be withdrawn penalty-free. |