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No Emergency Fund? 5 Cash Sources That May Be Available to You During the COVID-19 Crisis

Maurie Backman The Motley Fool Contributor Published On June 19, 2020

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We're told we're supposed to save for emergencies, and the COVID-19 crisis most definitely qualifies as one. But what if you never managed to put together an emergency fund, and now your bank account is virtually empty? That's bad news if you've lost your job, or if your income has taken a hit during the pandemic. Thankfully, there are a number of cash sources you may have at your disposal to get you through the crisis. Here are a few to look into.

1. A one-time stimulus payment

In late March, lawmakers approved a $2 trillion relief package that includes a one-time $1,200 stimulus payment for eligible Americans. You'll get that $1,200 in full if your adjusted gross income, as reported on your most recent tax return (either 2018 or 2019) is $75,000 or less as a single tax filer, or $150,000 or less as a married couple filing jointly. From there, that $1,200 is reduced by $5 per $100 by which your income exceeds these thresholds.

If you haven't gotten a stimulus payment yet, it doesn't mean one isn't on the way. But if the IRS doesn't have direct deposit details for you on record from a recent tax refund, and you don't submit that information using its new tool, you may have to wait months for a stimulus check to arrive in the mail.

2. Unemployment benefits

As long as you were let go from your job through no fault of your own and meet your state's minimum earnings requirement, you can file for unemployment benefits if you're out of work, or if your earnings or hours have been reduced. Right now, unemployment benefits are getting a $600 weekly boost, and to be clear, that's $600 on top of the benefit you'd otherwise qualify for based on your earnings record. Some filers have experienced difficulty claiming unemployment thus far, what with many states' systems being overwhelmed, so if you haven't gotten an application for benefits in yet, keep trying.

3. A home equity loan or line of credit

If you own a home you have equity in, you may be able to borrow against it if you need money immediately. With a home equity loan, you borrow a specific sum and pay it back at a fixed rate over time. With a home equity line of credit, you get access to a sum of money you can draw from as needed, and then you pay back the portion you borrow. Both options are fairly affordable -- they don't tend to charge exorbitant interest -- and they're fairly easy to qualify for, as long as the equity in your home is there.

4. A 401(k) loan or withdrawal

Normally, removing money from a 401(k) prior to age 59 1/2 means incurring a 10% early withdrawal penalty. Right now, however, that penalty will be waived if you remove up to $100,000 from your 401(k) because you've been impacted by COVID-19. You can also take out a 401(k) loan of up to $100,000, provided, of course, that you have that much money in your account to begin with. Normally, the outer limit for 401(k) loans is $50,000.

Of course, there's a major drawback to raiding your retirement plan -- the more money you remove now, the less you'll have available to you as a senior. Borrowing from your 401(k) may seem like a better option, as you'll then be paying that money back in theory. But be careful, because if you're unable to repay that loan in time, it will be treated as a regular early withdrawal -- one that's not exempt from the aforementioned penalty.

5. An IRA withdrawal

Unlike 401(k)s, IRAs don't offer loans, so borrowing against yours isn't possible right now. But you can take up to a $100,000 withdrawal if you've been hurt by the ongoing crisis and avoid the 10% early withdrawal penalty that would normally apply. As is the case with an early 401(k) withdrawal, this route is far from ideal, but if you're desperate, it may be your only choice.

It's always a good idea to set money aside for a rainy day -- and right now, the COVID-19 crisis is more like a massive, unending storm. But if you don't have cash reserves to tap, don't panic. Rather, explore your options for getting the money you need to put food on the table and cover your essential needs.

That said, do pledge to fill up your emergency fund once things normalize and your income strengthens and stabilizes. That way, you won't have to resort to potentially drastic measures if another major crisis strikes.

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