The Consolidated Appropriations Act, 2021 (CAA) bill was passed on December 21, 2020 and signed into law by the President on December 27, 2020. While the bill provides limited additional coronavirus (COVID-19) pandemic relief and some disaster relief, the bill did not extend the December 30, 2020 deadline to take the $100,000 maximum distribution from IRAs and 401k plans including owner-only solo 401k plans.
Disaster Relief for Damage Resulting from Wild Fires and Hurricanes
CAA only extends relief if you lived in a regional qualified disaster zone that was impacted by wildfires and hurricanes, for example, but it excludes disasters that are declared solely in response to the COVID-19 pandemic.
For Taking the Solo 401k Distribution or Participant Loan a “qualified individual” is defined as:
- Whose principal place of abode is located in a qualified disaster area; and
- Who suffered an economic loss as a result of the qualified disaster.
If you qualify for the above qualified disaster distribution (QDD) relief (hurricane and wildfires), the following applies to distributions from IRAs and solo 401k plans:
- Individuals can distribute up to $100,000 without penalty or withholding for disasters that begin on or after December 28, 2019, and that end on or before December 27, 2020 (the date the CAA was signed into law).
- The disaster distribution must be taken within 180 days of December 27, 2020. If an individual is affected by multiple disasters, this dollar limit applies separately to each disaster.
- The distribution is taxed ratably over a 3-year period and may be recontributed in 3 years and will be treated as direct rollovers when returned to the 401k or IRA.
- Solo 401k participant loans may be taken for up to $100,000 or the participant’s vested account balance, whichever is less.
- The solo 401k participant loan may be taken within 180 days after December 27, 2020.
- For outstanding solo 401k loans, repayments may generally be delayed for a year (or if later, 180 days after December 27, 2020). The additional time to pay the outstanding loan applies to loan repayments that are due within the period beginning on the first day of the disaster and ending 180 days following December 27, 2020.
CAA Did NOT Waive Required Minimum Distributions (RMDs) from IRAs or Solo 401k Plans, so Are Required in 2021
While RMDs from solo 401k plans and IRAs were waived in 2020, the new COVID-19 stimulus law (CAA) did NOT extend the RMD waiver. While the 2020 RMD will not need to be taken or made up in 2021, the 2021 RMD will apply and it will be based on the fair market value (FMV) of the solo 401k plan as of 12/31/2020.