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The Most Important New Tax & Retirement Changes [Pandemic Update]

Published on: Feb 21 2021

Some special tax and retirement plan rules were created in 2020 in response to the COVID-19 pandemic.

Congress recently extended one of them with some modifications but let another expire.

One provision gave taxpayers more than 60 days to roll over IRA distributions to the original IRA or to another qualified retirement plan.

The provision was created because Congress didn’t suspend 2020 required minimum distributions (RMDs) until March.

Some people took their required minimum distributions early in the year.

By the time Congress suspended required minimum distributions for the year, the 60-day period to avoid taxes on the distributions by rolling them over had expired.

So, the rollover period was extended into August.

No similar provision was included in the latest tax law.

To avoid taxes on a distribution from an IRA or other qualified retirement plan, you must roll it over to the same, or another qualified retirement plan, within 60 days of receiving the distribution.

In addition, you can do a 60-day rollover no more than once every 12 months.

Another provision in the CARES Act allowed people affected by the pandemic to take distributions of up to $100,000 from their qualified retirement plans.

Taxes on the distributions could be paid over three years instead of being included in gross income in the year of the distribution.

Or the taxpayer could take up to three years to return the money to the account (or another retirement plan) and avoid taxes on the distribution.

The latest tax law extended the provision with some significant modifications.

The new version doesn’t apply to people affected by the pandemic.

Instead, it applies to victims of officially declared disasters in 2021 and later years.

The event can be declared a disaster by any level of government. The victims can make retirement account withdrawals of up to $100,000.

There’s no early distribution penalty when the account owner is under age 59½.

The account owner has the same options that were available for the special COVID-19 pandemic distributions.

The taxes on the distribution can be spread over three years or the distribution can be returned to the account or another retirement plan within three years.

The new provision doesn’t seem to allow fresh $100,000 distributions for people affected by the COVID-19 pandemic, because that was a disaster in 2020 and hasn’t been declared one for 2021.

Stay tuned for any new developments in future issues of Retirement Watch Weekly.

And – if you’re not already a paid-up member of Retirement Watch – here’s why you should be: Big changes are afoot in 2021 and 2022. In every monthly issue of Retirement Watch, I advise members on the issues and events affecting retirees or those nearing retirement. You’ll find actionable advice on estate planning, IRAs, annuities, taxes, health/medical savings, and more. Click here now for more information.

P.S. With tax hikes of all kinds looming in the new administration, you must act quickly to protect your retirement. With the power of what we’re calling “Form #RC21,” you can learn how to keep thousands, potentially even tens of thousands, of your retirement funds safe and sound. Click here now for all the details.



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