Emergency Cash: Where to Get It if You Need It

I don’t have to tell you, that cash is pretty tight for a lot of us, no matter how good our financial situation is. And for those of us who haven’t paid close attention to our finances over time, cash is probably even tighter.

So, what can you do if you need some cash? Well, Christine Benz gave 8 great options on today’s Morningstar.com. And she ranks them from the easiest to live with to the toughest to swallow.

And guess what? Not one of those options includes getting one of those Payday cash loans. Whew, I’m glad about that.

OK, so then what does Christine talk about? Well, she begins in the obvious place – your emergency cash fund or short-term securities. But let’s be honest, a lot of us don’t have an emergency fund or short-term securities, or we have a small amount of money in either one.

So, then where can you turn? How about long-term assets in taxable accounts. Yeah, you can sell some stocks or bonds or mutual funds. But you have to beware of their tax implications. If they appreciated since you bought them, you might have to pay 15% in long-term capital gains tax. And if you sold a mutual fund that we owned for just a short time, you might have to pay a redemption fee.

That might not be too tough to live with. But what about the other options? Well, here they are in Christine’s order.

• Roth IRA - You can withdraw any Roth IRA contributions (what you put in, not what it’s earned) without having to pay penalties or tax. If you withdraw Roth earnings, you’ll probably have to pay taxes and penalties unless you’re 59 1/2.

• 401(k) Loan - You can borrow from your 401(k), but it really effects your retirement account because you have less money in your account to grow. I know. I borrowed from my 401(k) twice in my life and it really messed up my long-term retirement savings.

• Home Equity Line of Credit - Rates right now on these lines of credit are OK, especially if you have a good amount of equity in your house and a good credit rating. Remember, we’re talking about a line of credit, not a home equity loan. And unlike other loans, all or part of your interest could be tax-deductible.

• Traditional IRA - If you take out money from this kind of IRA before you reach retirement age, you’ll have to pay taxes and probably a 10% penalty, unless you meet certain criteria. This is because the money you put into this type of IRA was “before taxes”, so you never paid taxes on that money.

• Reverse Mortgage - This type of mortgage might be a good option if you’re over 62. You can get money in some form (cash, stocks, bonds, funds) that equals the equity you have in your house. And you don’t have to repay the mortgage as long as you live in your house. But if you do leave it, the amount you borrowed plus interest is deducted from your house’s value. WARNING: Beware of Reverse Mortgage Scams. They’re as popular as these mortgages. So, if you’re thinking of a Reverse Mortgage, read Christine’s article and click on the FTC’s website to find out more info.

• Credit Cards - This is getting to “last resort” territory. I would only think of credit cards if I couldn’t make any of the previous ideas work.

• 401(k) Withdrawal - This is “The Last Resort”. Christine does a good job explaining the pros and cons of this kind of withdrawal. But only under the most dire of circumstances would I ever think of doing this. Why do I say that? Because have withdrawn from my 401(k) and it killed my retirement savings much worse than when I just borrowed from my 401(k).

This is a pretty thorough list for ways to find cash when you need it. What do you think of it? Is there anything you would add? Let us know.

P.S. Before you even think about taking action on any of these ideas, please consult your financial professional.