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The Coronavirus Aid, Relief and Economic Security (CARES) Act was signed into law on March 27, 2020. This Act will have an impact on approximately 90% of all Americans in some form or fashion. There is already a plethora of information being released on the Act, much of which is more confusing than helpful! Therefore, our Wealth Management Team at SFMG is attempting to cut through the noise and summarize the key points of the bill and the impact it will have on our client base. Please contact your Advisor or Financial Planner at 972-960-6460 to discuss how the CARES Act might impact you.

Recovery Rebates

A refundable tax credit against 2020 income taxes will be provided to some taxpayers.

  • Who will receive the benefit?
  • Individuals filing a “Single” return as long as their most recent Adjusted Gross Income (AGI) (2018 or 2019 return if already filed) is not above $99,000. The amount of the check will begin to be phased out at AGI of $75,000 and completely eliminated for AGI over $99,000.
  • Couples filing a “Married Filing Jointly” return as long as their most recent AGI is not above $198,000. Checks will begin to be phased out at AGI of $150,000, and completely eliminated at $198,000.
  • Individuals filing a “Head of Household” return as long as their most recent AGI is not above $146,500 (assuming one child). Checks will begin to be phased out at $112,500 and completely eliminated at $146,500.
  • How much will I receive from the rebate check?
  • Each eligible individual will receive a $1,200 check, as well as an extra $500 for every child UNDER age 17.
  • For example, a couple filing married filing jointly that falls under the AGI limit with one qualifying child will receive $2,900.
  • If income exceeds the lowest level of the phaseout threshold, but is not completely phased out, the benefit will be reduced by $5 for every $100 that a taxpayer’s income exceeds the bottom threshold.
  • Will I have to pay back the amount I receive on my 2020 taxes?
  • No, the amount you receive from the stimulus check will not have to be paid back.
  • Additionally, if your income in 2019 (or 2018 if your 2019 return has not been filed) is too high to receive a check, but your 2020 income will be below the threshold due to COVID-19, you will receive the credit on your 2020 income tax return.

Tax and Retirement Plan Provisions 

Penalties for early distributions (under age 59.5) from retirement accounts have been suspended for 2020.

  • How much can I withdraw from my IRA or employer-sponsored plan?
  • Up to $100,000 may be withdrawn from IRAs and/or employer plans (combined limit).
  • Can I make a withdrawal for any reason?
  • No, the withdrawal must be made for a reason listed below:
  • Have been diagnosed with COVID-19
  • Have a spouse/dependent that has been diagnosed
  • Experience adverse financial consequences related to COVID-19 (quarantined, laid off, furloughed, or reduced hours)
  • Unable to work because of lack of childcare
  • Own a business that closed or operated under reduced hours because of disease
  • Will I have to “repay” the withdrawal into my retirement plan?
  • No, but the withdrawal is eligible for repayment over a 3-year period.
  • The withdrawal will be taxable, but income may be spread over 3 years if it is not “paid back” into the retirement account.

Required Minimum Distributions (RMDs) will be waived in 2020.

  • Does this apply to my retirement plan(s)?
  • This includes IRAs, employer retirement plans, 403(b) and 457(b)
  • If you delayed your first-time 2019 RMD to be received before April 15, 2020, you are eligible to suspend your 2019 and 2020 RMD.
  • This suspension applies to personal retirement accounts, as well as inherited accounts!
  • What if I’ve already taken my 2020 RMD?
  • Already-taken RMDs for 2020 may be rolled back into the account from which the distribution was received.
  • This does NOT apply for inherited RMDs, but future distributions may be canceled for the remainder of 2020.

This is not a comprehensive listing of the changes found within the CARES Act. If you would like more information on the entirety of the Act, please let us know. Your team at SFMG is here to help with any questions you may have.