Financial advisor Jakob Loescher reviews how Gen Xers and Millennials can benefit from the Coronavirus Aid, Relief and Economic Security (CARES) Act.

Most of the articles I’ve seen offering advice on how to get through the pandemic and associated economic downturn have been geared toward retirees and business owners. But I want to concentrate on the approximately 137 million individuals making up Generation X and the Millennials. So let’s dive into what specific relief and potential strategies apply to them.

Recovery Rebates will be going out to eligible individuals and couples, hopefully as soon as the next three weeks. Here is a very basic overview of who is going to receive these checks and how.

How much a taxpayer receives is initially based on their filing status and how many eligible children they have. Those with a married filing joint status have a base credit of $2,400, and all other filers have a base credit of $1,200. They will receive an additional $500 for every eligible child they have (under the age of 17). However, there will be income limits where these rebates begin to phase out. For those married filing joint it begins at $150,000, for head of household filers it begins at $112,500, and for all other filers it begins at $75,000. Once a taxpayer hits these levels, the credit begins to phase out at a rate of $5 for every $100 of excess AGI. This means that these taxpayers (if they do not have children) will be completely phased out at an AGI of $198,000 for married filing joint filers, $136,500 for head of household filers, and $99,000 for all other filers. However, if you have eligible children you essentially get an additional $10,000 worth of AGI per child before you are completely phased out. Where does this AGI number come from? It comes from your latest filed tax return, be it 2018 or 2019.

Example #1:
Tax Filer: Married Filing Joint; No Eligible Children; $205,000 AGI
Base Credit: $2,400
Phase Out: -$2,750 [($205,000 – $150,000) x .05]
Payable Credit: $0 (cannot be negative)

Example #2:
Tax Filer: Married Filing Joint; 2 Eligible Children; $205,000 AGI
Base Credit: $3,400 ($2,400 + $500 + $500)
Phase Out: -$2,750 [($205,000 – $150,000) x .05]
Payable Credit: $650

A major downfall of this system is that it does not take into account life changes that have occurred since your last return was filed. This potentially includes getting married, getting divorced, having children, and losing your job in 2020. Taxpayers who do not qualify for the recovery rebate based on their 2018 or 2019 tax return will receive credit on their 2020 tax return if their 2020 AGI allows for it. However, this is of little use to someone who needs the money now.

If you or your spouse is laid off right now, there are other benefits you can take advantage of. For example, unemployment benefits are expanded to now include self-employed individuals, extend the period of availability, and add an additional $600 a week in benefits. There has also been an easing on the requirements for taking a loan or distribution from your retirement account. And, if you have outstanding federal student loans, you now have the ability to suspend your payments through Sept. 30.

My last piece of advice is for those young people who have been unaffected financially by this crisis. If you are confident with your current emergency fund, now is a great time to think about investing into your retirement fund. As of this writing, the global stock market is approximately 25% off of its all-time high. And while we do not know if we have hit the bottom, we do know that stocks are trading at significant discounts to where they were just two months ago. This means we could potentially be looking at increased rates of return moving forward.

We are grateful for the continued trust you have placed in us. Should you have any questions or concerns, feel free to reach out to your advisor. Together, we will all get through this.

Author Jakob C. Loescher Financial Advisor / Team Lead

In 2016 Jake was recognized by the Rockford Chamber of Commerce as one of 40 Leaders Under Forty. In 2023, for the sixth time in seven years, he was named on Forbes’ list of America’s Top Next Generation Wealth Advisors.

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