Deadline for CARES Act Retirement Plan Distribution Benefits

Today is the last day for eligible taxpayers to take IRA and employer-sponsored retirement plan distributions that qualify for special tax benefits under the Coronavirus Aid, Relief, and Economic Security (CARES) Act. This legislation was enacted in March 2020 as a response to the coronavirus (COVID-19) pandemic. There has been some industry and media confusion over whether more recent pandemic relief legislation has provided an extended opportunity to qualify for such benefits, but it has not.

The following retirement plan-related CARES Act provisions apply to eligible coronavirus-related distributions (CRDs).

• Exemption of up to $100,000 of retirement plan withdrawals from the 10% penalty tax for early withdrawals from retirement plans.
• Three-year ratable taxation of such withdrawals, with a period of three tax years to return such withdrawal to a qualifying retirement account.

Just after Christmas, President Trump signed into law the Consolidated Appropriations Act (CAA), 2021, which provided federal agency funding, limited additional coronavirus (COVID-19) pandemic relief, and limited disaster relief. Among its provisions was the granting of the above-described tax benefits to victims of certain regional natural disasters, if such disaster events began  during the period beginning December 28, 2019, and the declaration ended within 60 days after CAA’s date of enactment, December 27, 2020. For those eligible for this new benefit, retirement account withdrawals may be made for up to 180 days after CAA’s enactment.

In March 2020, President Trump had declared that all 50 states would be considered disaster zones as a result of the COVID-19 pandemic. This appears to be the source of the recent confusion, and what some have believed to be the eligibility of all Americans to make retirement account withdrawals that qualify as CRDs and eligibility for these above-described tax benefits.

However, the CAA provision that may have contributed to the confusion actually excludes disasters that are declared solely in response to the COVID-19 pandemic. Thus, President Trump’s COVID-19 disaster declaration of March 2020 covering the entire U.S. does not extend to all Americans the above-described tax benefits. (These individuals may, however, qualify for other benefits, such as extended deadlines for certain tax filings, and other tax-related transactions.)