It appears that a second round of stimulus is on the way. On July 27, Senate Republicans introduced the HEALS Act, which, among other things, would issue $1,200 stimulus checks to qualifying Americans. The Democrat-led House passed the HEROES Act in May, which also offered $1,200 stimulus payments. There are many points in which the two sides disagree, but a second round of stimulus payments seems to be mutually-agreed upon.1
Of course, if the second stimulus package is like the first, most families would receive a few thousand dollars, depending on their income level and how many people are in the family. While that may be helpful, it also may not be enough to replace lost income or overcome a financial hardship.
Fortunately, you have other options available to access cash in the event of an emergency. Below are three such options. It’s helpful as well to consult with a financial professional before you make any big decisions. They may be able to help you explore other options that you haven’t considered.
401(k) or IRA
Do you use a 401(k) or IRA to save for retirement? Those assets are meant for the future, but you can access them now if that’s your only option. Under the CARES Act, you can withdraw up to $100,000 from a 401(k) or IRA, even if you are under age 59 ½. You won’t pay the 10% early distribution penalty, but you will pay taxes, although you can spread them out over three years.2
Keep in mind, though, that a distribution from your retirement savings is really just taking money from your future self to cover today’s expenses. If you take a distribution, you lose the opportunity to grow those funds on a tax-deferred basis for the future. That could put you in a difficult financial situation when you retire. Consider other options before tapping into your retirement funds.
If you have a Roth IRA you may have even more flexibility. If you’re over age 59 ½, you can take a tax-free withdrawal from your Roth at any time, assuming you’ve held the account for more than five years. If you are under age 59 ½, you can withdraw your contributions tax-free and penalty-free at any time.
Of course, this presents the same challenge as taking a withdrawal from a 401(k) or IRA. You’re taking withdrawals from your future retirement assets to pay today’s expenses. Again, you may want to explore other options before going this route.
Do you have a permanent life insurance policy? If so, you may be able to tap into the policy’s cash value. You can withdraw your premium payments on a tax-free basis.
You can also take a loan from the policy. Loans are tax-free, but they have to be repaid over time. If you pass away before repaying the loan, the balance is deducted from the death benefit.
Depending on your assets and needs, you may have other options available. Let’s talk about it. Contact us today at Caprock Financial Group. We can help you analyze your options and implement a strategy. Let’s connect soon and start the conversation.
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