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10 Ways to tap your Retirement Accounts

If you’re in need of cash right now, the following ten options will provide short-term cash flow or cover a financial emergency without depriving you of the long-term growth potential in your retirement account.

Life is full of surprises, not all of them pleasant. If you’re confronted with an unexpected financial shock, it could be tempting to dip into your retirement savings accounts to make a withdrawal. Don’t take our advice. There are many better options.

“When you take money from your retirement account, you’re missing an opportunity to market,” says Michelle Buonincontri, CFP, an expert in financial coaching which works in Anthem, Ariz. “That’s an investment opportunity that you may not be able to return.”

1. Credit Card with 0% APR Offers

Do you have a good credit score? If yes, a credit card with a 0% introductory rate for a period of six to twelve months could be an excellent method to cover your short-term costs. Take a look at the top credit cards that offer 0% APR, but make sure you’ve got a plan in place in place to settle the debt before when the regular interest rate starts.

“A couple of times ago, I realized I would be required to pay $5,000 due to launch my company,” says Brandon Hill, creator of Bizness Professionals, a blog dedicated to professional development. 

“Instead of paying out $5,000 of my own money, I decided to apply for a rewards card. The card gave me an uninterest-free credit for 12 months and, thanks to the bonus, I was able to earn cashback of $750.”

A caveat to this method is that you need to make sure you use it in moderation. Otherwise, it could affect your credit score. You shouldn’t apply for a new credit card when you require money. 

If you’re concerned that there’s a good chance, you’ll be in a position to not pay the amount before the time when the promotional period is over, and it’s not a good decision.

“Borrowers with large sums of credit on the high-interest credit card will be very difficult to climb out of the financial abyss,” says Nishank Khanna, Chief Financial Officer of the small-business lending firm Clarify Capital.

2. CDs or Certificates (CDs)

Certificates of Deposit (CDs) are savings instruments that provide an interest rate that is fixed if you put your money in them up to the point of the date of maturity. If you own CDs that have gotten older, it is possible to take the cash out to meet all of your cash requirements.

However, if you own an unfinished CD yet mature, you may also cash out your money. Sure, you’ll be charged a fee, usually a few months of interest. However, it could be much lower than the amount you’d owe in interest on loans of the same amount.

3. Health Savings Accounts (HSAs)

Suppose you are a member of a health savings account (HSA). In that case, you can access funds to pay for eligible medical expenses, such as medical care and dental services, prescription drugs, and the cost of long-term health services. 

You may also be able to withdraw funds if you’ve kept receipts from past (unreimbursed) healthcare expenses.

The idea of putting a portion of your emergency funds in an HSA that is tax-free and triple-tax-free HSA is a smart option, so long as you pay for your current health costs with tax-free dollars. You should also keep receipts to reimburse yourself retroactively.

If you’re in a pinch, it’s possible to access your HSA without saving these receipts, but you’ll have to pay taxes as well as an additional penalty for withdrawals if your funds are used to fund purposes other than medical.

4. Personal Credit

Credit unions and banks offer credit for personal use with fixed interest rates and repayment schedules. Rates are currently low.

“Personal loans are best utilized to cover one-time expenses like auto-purchase or the student loan payment at this point,” says Michael Hammelburger as director of operations at the Bottom Line Group, a cost reduction consultancy firm.

If you decide to go down this route, it’s crucial to determine how much you’ll need and the amount you’ll be able to repay based on monthly. 

“These two elements are vital when it comes to getting a personal loan because anything that isn’t in line with the amount you need to cover your expenses is likely to impact the rate of interest you have to repay,” says Hammelburger.

5. Home Equity Line of Credit (HELOC)

If you own some equity within your house, you should look at the possibility of a Home Equity Line of Credit (HELOC) as well as a home equity loan. These loans use the home’s equity as collateral.

Therefore, it’s crucial to control the monthly repayments. In the event of a lapse in payments, it could cause the bank to seize your property.

Take note that the interest payments could be tax-deductible when you use the money to improve your house. Rates tend to be competitive with lenders, so you should compare the two to three lenders before settling on one.

6. Peer-to-Peer (P2P) Lending

Peer-to-peer lending sites connect borrowers to people or groups of people intending to lend you money. The rates of interest vary, and the most suitable option for you will be based on your credit rating and the amount you’d like to borrow.

Peerform, for example, provides prices that are as low as 5. However, the loan limit is $25,000. Rates on sites such as LendingClub and Upstart exceed 8 percent for their highest-credit borrowers. LendingClub and Upstart provide loans of up to $50,000 or $40,000, respectively.

7. Margin of Brokerage Loan

If you own a Margin account with the online broker, then you may take out loans using the funds within the accounts as collateral. Brokerage companies will cost interest. However, there is no specific repayment time frame.

Remember that if the securities you’re using for collateral decreases below a specific limit, the brokerage might issue a margin request requiring you to put up additional funds or sell certain of your investments.

This could be risky, dependent on the terms of the margin agreement you signed and your brokerage’s margin agreement. It could be that they are not obligated to offer you the option. 

They could simply decide to sell a portion of your investments without notifying you that it is required to return your account to good standing. In other words, you may end up selling your investments for the cost of losing money.

8. Life Insurance

If you have a long-term Life insurance policy that has cash value, you could be able to draw against it. Permanent life insurance will last throughout your entire life, so long as you continue to pay the cost of the premium. 

This differs from traditional life insurance that provides coverage for a particular amount of time (or “term”) and is not backed by a cash value.

A loan from your policy requires that it’s accumulated the required fixed amount, something that can take time. Contact your insurance company to determine if this is a viable alternative for you. 

Be aware that borrowing could reduce the life insurance benefit should you die in the case that you die before repaying the loan. You might be subject to interest charges though they’re generally very low.

If you don’t possess a permanent insurance policy, don’t go out of your way to purchase it for the sole purpose of the basis of an emergency savings account. 

The premiums for permanent life insurance tend to be more expensive than life insurance policies for the term, and the additional amount you’d have to pay each month can be better utilized to build an additional fluid emergency savings account.

9. Social Security

If you’ve passed your full retirement age, but you haven’t yet started taking Social Security, yet you can take an entire lump-sum payment that can be up to 6 months’ payments in one go. 

The amount you’re allowed to take is contingent on how much beyond the full retirement age that you are. If you’re four months over the age of retirement at which you’re fully retired, as an example, you could only apply for as much as four months’ lump sum benefits.

While the money flow could be beneficial but it’s generally thought to be a risk in the long run. This is because it reduces your monthly benefits to what it could have been if you had begun taking Social Security a few months before.

10. 401(k) Loans

This is a step toward using your retirement savings, and you ought to think about alternatives if you require money immediately. But, many 401(k) programs offer the possibility of borrowing from the balance of your account.

The 401(k) loans let you borrow money from your account without paying taxes or penalties that you could face when you make a direct withdrawal. As with any loan, you’ll pay it back with interest–essentially, you’re paying yourself to take a loan from yourself. 

401(k) loan amounts are typically only available for 50% or $50,000 of the balance on your vested account; however, if you’ve experienced financial difficulties due to certain disasters that are recognized by the federal government or natural disasters, you might be eligible to get the loan of 100 percent or $100,000 of the balance in your vested account.

As mentioned in the introduction, pulling cash from retirement savings could seriously hinder your retirement time, so make sure you proceed carefully. 

In addition to the lost gains, keep in mind that if you quit your employer before having made repayments on your loan, you’ll have to repay it no later than the time your taxes for the year are due. Your business may require it earlier under its policies.

If you cannot pay off your loan within the timeframe you have set, the loan will be considered the balance remaining as an early withdrawal and might be liable for taxes and the penalty of 10.

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