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Financial emergencies come for us all, and when they do, you’ll want a stash to pull from to cover at least part of the costs you’ll incur.
But if, like many Americans, you don’t have an emergency fund, and you need cash quickly, there are a few other sources you might be able to dip into as a last resort. These buckets typically have fees or interest attached to them, so, again, they’re to be used sparingly. But they’re options if you need quick financial help.
401(k) loan
If your 401(k) permits loans, you can usually borrow the greater of $10,000 or 50 percent of your vested balance, and no more than $50,000 (though your plan may set its own limits). There’s no credit check required, so your credit score won’t be affected.
What to keep in mind about a 401(k) loan, however, is that you have, typically, five years to repay what you borrowed (unless you leave your job). When you do repay it, “the good news is that you borrow your own money and pay the interest back into your account,” notes Kiplinger, because technically you’re borrowing from yourself.
Assuming you can repay it within the five years, this is a potentially low-interest way to access needed funds. “As long as a plan allows it, participants generally can borrow from their 401(k) for any reason,” notes Credit Karma. “Some plans may only allow loans for specific reasons, so be sure to check your plan’s rules before trying to borrow.”
And remember that you’re missing out on potential retirement savings/compounded returns when you pull money from your account.
Roth contributions
Along the same lines, if you’ve contributed to a Roth, you can withdraw those contributions at any time, tax- and penalty-free. You cannot, however, withdraw earnings unless you meet certain requirements.
Home equity line of credit
A home equity line of credit (HELOC) is a secured loan in which your house is the collateral. You aren’t loaned a certain dollar amount, however; rather, you’re extended a line of credit and you can borrow up to that amount, like a credit card, over a period of time. The interest rate attached is usually variable (which is different from a home equity loan). Writes Bankrate:
The borrower accesses the line of credit using specially issued checks or a card that looks like a credit card. Lenders often require you to take an initial advance when you set up the loan, withdraw a minimum amount each time you dip into it, and keep a minimum amount outstanding.
Obviously, this option isn’t available to everyone (you need to be a homeowner), and if it is, your home is on the line if you don’t pay back your loan. But it can also be a way to secure some cash.
HSA withdrawal
Another potential source of emergency money, Kiplinger notes, is your HSA. Here’s how that might work:
If you have used other cash to cover your current medical expenses, you can save the money you contribute to the HSA and use it like a backup emergency fund, as long as you match withdrawals with eligible medical expenses you incurred since you opened the account, even if it was years ago. Keep a stash of receipts for expenses you paid for eligible medical expenses in your records.
In other words, if you have an HSA and can pay with cash now, you might be able to recoup your money at a later date to cover an emergency, assuming you keep your receipts (otherwise it’s smart to keep your HSA funds to cover medical costs in retirement, if you can swing it).
If none of these are options for you, then work on building that emergency fund.
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