Congress passed a multitrillion-dollar stimulus package, known as the CARES Act, in March to help Americans stabilize their financial situations throughout the coronavirus pandemic, but many individuals appear unfamiliar with how the law can help them.
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The U.S. economy entered a recession in February, and 43.5 million Americans have filed for unemployment since mid-March. The CARES Act was signed by President Trump on March 27 as a means to provide fast, direct relief to families, workers and businesses.
However, a new study from TD Ameritrade showed that many people misunderstood the policies the CARES Act put into place to help them.
Here’s a look at some of the biggest misconceptions people had about the law, according to the TD Ameritrade report:
Only 26 percent of people were aware that the CARES Act relaxed withdrawal rules from 401(k) accounts to help households meet immediate – or pressing – payment obligations. Thirty percent of people thought this was not possible, while the remainder weren’t sure.
Even fewer – 18 percent – were aware that they are able to withdraw up to $100,000 from their 401(k) retirement stash without being subject to the 10 percent penalty – so long as the funds are used for coronavirus-related financial needs. Individuals will, however, have to pay income taxes on the money.
Not many people – only 23 percent – were aware that they could skip a required minimum distribution from an IRA account in 2020. Thirty percent thought they couldn’t, while 47 percent did not know.
The same amount of people (23 percent) correctly said they are able to withdraw from these accounts without penalty if they have been affected by COVID.
Individuals are also able to complete an IRA rollover beyond the 60-day rollover period, until July 15, which only 22 percent of people appeared to know.
Nearly one-third of people thought they would have to pay back the economic impact payment given to them by the federal government next tax season.
The checks, valued at $1,200 and $2,400-plus, are meant to help Americans weather near-term financial turmoil brought on by the pandemic.
However, they do not need to be repaid. They are also not subject to income taxes.
Tax day delay
On the other hand, a majority of respondents – 60 percent – did know that the deadline to file their tax returns was extended until July 15.