A New $900 Billion COVID-19 Stimulus Package Passed By Congress Was Signed Into Law By President Trump on December 27, 2020

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What’s most important about the legislation is what’s not in it. It does not extend the CARES Act provisions for coronavirus-related distributions (CRDs) beyond December 30, 2020 and does not extend the RMD waiver beyond 2020.

The new law does include retirement plan disaster relief for non-COVID-19 disaster declarations. The relief is the same as the disaster relief we have seen in prior legislation. Individuals affected by a declared disaster 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 the CARES Act. 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.

The stimulus package also permanently extends the 7.5% threshold for deductible medical expenses. (The SECURE Act had temporarily extended the 7.5% threshold for 2019 and 2020.) This means that the 10% early distribution penalty will not apply to IRA or plan withdrawals for medical expenses to the extent the expenses exceed 7.5% of adjusted gross income.

CORONAVIRUS VACCINES AND THE ECONOMY

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As the United States sees a rise in cases of COVID-19 across the nation, news of two promising vaccines out of hundreds being tested has offered a ray of hope for a fatigued world.1

A positive reaction to these vaccines affects every aspect of human life, including the financial world. On Monday, November 16th, The Dow Jones Industrial Average rose 450 points on the news of a second effective vaccine, hitting a record high.2

Markets are not merely reacting to the positive news, but what a vaccine might mean for the economy. Investors are likely picturing people returning to something resembling their old lives. Stocks related to travel, such as airlines and cruise holidays, have seen an uptick. The properties of the vaccine itself might influence the markets – one of the vaccines spotlighted requires deep refrigeration, leading to a boost in trading for companies offering that service.3

While the hope the vaccine inspires feels reassuring, it’s crucial to maintain the long view, just as the markets are. Investors may now see life after COVID-19 on the horizon, but we aren’t there yet. Vaccines must be approved for use, distributed, and widely adopted before the full benefit can be realized. That will take time.4

1. The Associated Press, November 16, 2020

2. CNBC.com, November 16, 2020

3. Barrons.com, November 10, 2020

4. Seattle Times, November 16, 2020