Places To Find Cash After A Disaster
It happens when you least expect it, and you certainly don't plan for it. The natural disaster, like a flood, fire or any other type of personal catastrophe that leaves you in dire need of liquid funds.
Self preservation requires cash. If you’re hit with an emergency and need to find cash fast, of course, the first place to look are your bank accounts. If these funds are not sufficient, then look to these resources.
1. Family and Close Friends
If you need to find cash fast, ask your family and friends. If they can help, remember to always treat this as a loan and never treat it casually.
If you need to, attach an interest rate and a payment time frame, as you would any official loan from a financial institution. This is important because your family or friend have to charge you something for the transaction to be considered a loan and not a gift that could have tax and estate planning implications.
2. The Government
FEMA is able to provide disaster assistance for such needs as temporary housing, home repair, disaster-related medical expenses, vehicle damage and cleanup costs. Another source, the U.S. Small Business Administration (SBA) offers federally subsidized loans for renters, private nonprofit organizations and home and business owners.
Here's the catch...to qualify for either a FEMA or SBA loan, you must live in a federally declared disaster zone and file a claim with their insurance company first.
3. Life Insurance
Permanent life insurance policies are great resources because they’re readily accessible funds. The can be borrowed against without having to qualify for a loan, and you can pay a policy loan back on your own schedule.
However, rules will vary with insurance providers. Many require policyholders to own their policies for a few years before they can qualify to borrow. You’ll also be charged interest for taking out a policy loan.
4. CDs, Savings Bonds and Mutual Funds / Stocks
CD's: You can take your money out of a CD, but you’ll likely pay a penalty. Sacrificing some earnings is a relatively insignificant compared to paying interest rates on a life insurance loan.
Savings bonds: Savings bonds are another quick cash resource. You might need to pay a three-month interest penalty if a bond is redeemed too early though. In both cases, of course you’ll pay income tax on any interest earned.
Mutual Funds: You can sell stocks as well as mutual funds and annuities. If you take this route, consult your financial adviser about likely tax issues and penalties.
5. College 529 Savings
You may need to borrow from your future to pay present obligations. You 529 College Savings Account is a good resource for this. However, according to the Securities and Exchange Commission, those who withdraw funds out of a 529 plan for non-qualified education expenses will pay income tax and a 10 percent penalty on any earnings.
6. Retirement Accounts
Retirement accounts can be used to fund personal financial needs. It's important to understand the long term personal retirement planning impact. So plan accordingly and know the difference between a Roth IRA and a traditional IRA.
Roth IRA holders may withdraw their own contributions — not earnings — without tax or penalty.
Traditional IRA holders may start taking penalty-free distributions on their accounts if they begin taking regular distributions, but specific rules apply. You’ll pay income taxes and a 10 percent penalty on the taxable amount if you’re under age 59½.
7. A 401(k) Loan
A 401(k) loan is usually a better option than using a 529 or IRA loan.
401(k) holders can borrow up to half of their account balance, up to $50,000, tax-free, but, in most cases, funds must be repaid within five years.
The shortcoming is that you have to stay with your current employer for the duration of the loan period. If you leave your job, you’ll have 30 to 60 days to repay the loan or face penalties.
Before pulling funds from any long-term investment, read the fine print and always consult your tax adviser.
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