Given Covid legislation, how long can I withdrawal up to $100k from my traditional IRA without the 10% tax penalty if my spouse was unemployed in the summer of 2020?

[Opus 17]

The deadline in the CARES act was December 30, 2020.  I don't see that it was extended in the recent appropriations bill that included other COVID relief measures. 

[kengelhardt8]

According to Jamie Hopkins at Forbes, it seems the new legislation does allow for a early penalty free withdrawal as a "Qualified Disaster Distribution." Refer below. It seems it expires in late Feb. However, am I reading this wrong? 

"Congress, in COVIDTRA (COVID-Related Tax Relief Act of 2020), passed new legislation creating a similar and permanent retirement plan distribution exception called the Qualified Disaster Distribution. This allows for a similar set up as the CRD (2020 IRA withdrawal rules) – up to $100,000 aggregate per qualified disaster can be withdrawn from retirement accounts and avoid the 10% penalty tax. The amounts can be repaid and be treated as an eligible rollover any time during the three-year period beginning on the day after the distribution was taken.

The amount will be treated as taxed over a three-year time period unless the taxpayer elects to have it taxed in the distribution year. Additionally, if this distribution is coming from a qualified employer plan like a 401(k), it is not subject to the normal 20% mandatory withholding rules if properly identified as a qualified disaster distribution. Instead of focusing on COVID-19 impact like with the CRD, to qualify under COVIDTRA you must have primarily resided in a qualified disaster area and you must have sustained an economic loss from the qualified disaster."

[dmertz]

Various news sources have reported that the bill signed into law in late December 2021 extended the deadline for obtaining a CRD, but a careful reading the bill does not seem to support that conclusion.  The news reports appear to be wrong.  The disaster-related provisions appear to explicitly exclude COVID-19 as a disaster for the purpose of this section of the bill, making it apply only to disasters like wildfires and hurricanes.  See Opus 17's reply below for more details.

Unless you hear otherwise from the IRS, it seems reasonable to assume that the deadline for obtaining a CRD has passed.

[Opus 17]

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@kengelhardt8 wrote:

According to Jamie Hopkins at Forbes, it seems the new legislation does allow for a early penalty free withdrawal as a "Qualified Disaster Distribution." Refer below. It seems it expires in late Feb. However, am I reading this wrong? 

You're going to need a lawyer, or wait for IRS guidance.  The actual enacted law is very strange.  I'm looking at Title III beginning on page 4956 of this PDF.

https://www.winston.com/images/content/2/2/v2/227269/Consolidated-Appropriations-Act-2021-unsigned-v...

Section 301(1)(A) says that a qualified disaster area is any area declared as a disaster by the President between January 1, 2020 and 60 days after the enactment of the law.  That seems to mean that the provisions only apply to disaster that are declared between 1/1/2020 and about 2/28/2021. And the disaster itself must have occurred between 1/1/2020 and the date the bill was enacted (signed into law). 

Section 301(1)(B) specifically says that the term, "qualified disaster area" does not apply to any place where a disaster was declared solely due to COVID-19.

Then section 302 restates the same rules as in the CARES act (no 10% penalty, 3 year repayment) for distributions taken due to a qualified disaster.

So unless my understanding of the English language is seriously flawed or there is some other counter-acting language in the bill, the special withdrawal rules only apply to disasters declared between 1/1/2020 and 2/28/2021 and do not include COVID as a disaster.

[Opus 17]

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@dmertz wrote:

Various news sources have reported that the bill signed into law in late December 2021 extended the deadline for obtaining a CRD, but a careful reading the bill does not seem to support that conclusion.  The news reports appear to be wrong.  The disaster-related provisions appear to explicitly exclude COVID-19 as a disaster for the purpose of this section of the bill, making it apply only to disasters like wildfires and hurricanes.  See Opus 17's reply below for more details.

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What the law seems to do is to extend the special CARES act rules to other non-COVID disasters that occurred in 2020, not to make the disaster rules permanent or to extend or make the COVID rules permanent.

[Opus 17]

To get even more technical, the actual law is Public Law 116-260, "Consolidated Appropriations Act, 2021."

Division N of the law is titled ‘‘Coronavirus Response and Relief Supplemental Appropriations Act, 2021’’.  This includes a number of items including adjustments to Medicare Reimbursements and changes to Unemployment Insurance.  

Subtitle B of Division N is titled "COVID-related Tax Relief Act of 2020".  This contains the second stimulus payment, extension to deferral of payroll taxes, and some technical corrections and clarifications to things like the taxability of small business loans that were forgiven.  There is nothing here about retirement plans. 

Division EE is titled the ‘‘Taxpayer Certainty and Disaster Tax Relief Act of 2020’’.  This includes the extension of certain tax benefits, such as deductible mortgage insurance premiums, tax credits for energy efficient home improvements, and permanently restoring the 7.5% floor on deductible medical expenses.  Title III of this act is the disaster relief portion, and what it seems to do is to extend several CARES act provisions to any other disaster that occurred in 2020 that was not COVID-related. 

[dmertz]

Here's what I believe is accurate reporting from a major organization in the retirement-plan business, in agreement with what we have said here, that the deadline for taking a CRD has not been extended:

https://www2.ascensus.com/news/industry-regulatory-news/2020/12/30/despite-some-confusion-december-3...

[amit2020]

I am aware that early IRA withdrawal penalty do not apply if its done before 12/31/2020 however do we have any updates for the year of 2021 ? are there any possibility of extension in 2021 ? 

[npierson7]

There is a possibility of the extension of the Cares Act in 2021, however no information yet available. 

You can read updated information there:

Coronavirus-related relief for retirement plans and IRAs questions and answers 

[amit2020]

Thank you.

My pension plan administrator says my current pension plan is not eligible because its "non-contributory".

In any case if and when the "retirement plan withdrawal" is carried over in 2021 I would worry about it; just thought of checking  in with other users experience regarding "withdrawals from non-contributory plan" during 2020 ?