Many Americans are looking for sources of cash during the COVID-19 pandemic. To help, Morningstar's Christine Benz analyzed and ranked possible sources of funds from best (i.e., involving the fewest rules and costs and least long-term disruption) to worst (i.e., having high costs and “onerous taxation”). Click through this gallery to see how she ranked them.
1. Your Own Emergency Fund: This is an “obvious” starting point, Benz says. These resources include funds in bank savings and money market accounts, and they should not be held in tax-sheltered wrappers. Workers need at least three to six months of living costs available, while retirees ideally want access to one or two years of expected portfolio withdrawals. (Photo: Shutterstock)
2. Low-Risk Assets in Taxable Accounts: After using emergency funds, the next place to turn to is taxable holdings, like securities in brokerage accounts, which are not held in tax-sheltered vehicles. Benz says to review liquidity, tax consequences and commissions on such sales. Short- or intermediate-term bond funds might be a good starting place; liquidate longer-term investments if you’ve recently bought them and could take a tax loss. (Photo: Shutterstock)
3. Roth IRA Contributions: Benz suggests making withdrawals from Roth IRA contributions before taking hardship withdrawals or loans from IRAs or 401(k)s, since Roth IRAs are more flexible and have “fewer strings attached than other tax-sheltered retirement vehicles.” (Photo: Shutterstock)
4. Cash Values on Life Insurance: You can withdraw cash values tied to whole life insurance and variable universal life insurance policies; those amounts then will be deducted from the face value. These withdrawals are tax-free, if they don’t exceed the amount you’ve put into the policy. You can also borrow from the cash value of your life insurance and pay interest on the loan. (Photo: Shutterstock)

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5. 401(k) Loans: These loans are preferred to hardship withdrawals, Benz says. While you must pay interest on them, the interest gets paid back into your accounts, and rates “can be reasonable.” (Photo: Shutterstock)
6. Home Equity Lines of Credit: Interest rates on HELOCs are tied to credit ratings, the amount of equity owners have in their homes and the size of the loans. Also, interest on HELOCs is not tax deductible “unless the funds are used for home improvements,” Benz points out. (Photo: Shutterstock)
7. Hardship Withdrawals from IRAs, 401(k)s: The CARES Act gets rid of the 10% early withdrawal penalty for people with COVID-19, lets them pay back the funds over three years and spreads the tax burden over three years, too. On the downside, Benz says, with stocks down, it’s not the best time to sell long-term assets, and investors may end up paying back the funds when stocks are more expensive. (Photo: Shutterstock)
8. Reverse Mortgages: Those 62 and older can get a pool of assets representing equity held in the homes, and they don't have to repay the loans if they reside in the residences. (The borrowed amount and interest are deducted from a home's value when they sell.) But rates can be quite variable, “making the loans potentially costly and complicated,” Benz adds. (Photo: Shutterstock)
9. Margin Loans: Borrowing against the value of securities in brokerage accounts may make sense for investors who don’t want to sell certain assets at a bad time in the market and/or don’t want immediate tax consequences, according to Benz. Still, interest rates on this source may be less attractive than with some other sources, like HELOCs, and margin loans are risky since they’re tied to market movement. (Photo: Shutterstock)

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10. Credit Cards: This option could make sense for those who move card balances around to avoid paying lots of interest. However, credit cards can also wreak havoc on your finances due to high rates, Benz says, and minimum payments “don't make a dent” in the loan principal. (Photo: Shutterstock)

The Coronavirus Aid, Relief and Economic Security (CARES) Act aims to provide financial support to taxpayers most in need during the pandemic. The $2.2 trillion stimulus package also gives some individuals easier access to retirement accounts.

But as people lose their jobs — particularly in service industries — and face rising health care costs, how can they quickly access cash? 

In general, most pre-retirees feel unprepared to manage emergency expenses, according to a recent Schwab survey. Plus, a separate Schwab poll found 59% of Americans living paycheck to paycheck last year. 

Such circumstances prompted Christine Benz, Morningstar’s director of personal finance, looked at recently.  

As she points out, the CARES Act gets rid of the 10% penalty on hardship withdrawals from retirement plans and IRAs on amounts of up to $100,000, for those affected by the coronavirus. 

Of course, many individuals may be looking for other options during the pandemic — which prompted Benz to analyze and rank them from best (i.e., involving the least rules and costs and long-term disruption) to worst (i.e., having high costs and “onerous taxation”). Check out the gallery above to see those options.

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