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Unexpected financial crises come for everyone, and when they strike, having a financial cushion is key to managing the expenses you’ll face.
However, if you find yourself without an emergency fund and need money quickly, there are a few emergency options you might consider. These alternatives often come with additional fees or interest, so they should only be used in urgent situations, but they can be a helpful last resort when you need immediate financial support.
401(k) loan
If your 401(k) plan allows loans, you may be able to borrow up to the greater of $10,000 or 50% of your vested balance, with a cap of $50,000 (though your plan might have its own limits). No credit check is required, so borrowing won’t impact your credit score.
One thing to keep in mind with a 401(k) loan is that typically, you have up to five years to repay what you’ve borrowed (unless you leave your job). When you pay it back, “the benefit is that you’re borrowing from yourself and paying the interest back into your own account,” as Kiplinger points out.
If you can repay it within the five-year period, this can be a relatively low-interest way to access funds. “As long as the plan allows it, participants can generally borrow from their 401(k) for any reason,” says Credit Karma. “However, some plans might limit loans to specific purposes, so make sure to check your plan’s rules before borrowing.”
Don’t forget, though, that by withdrawing from your 401(k), you’re missing out on potential growth and compounding returns that could have been earned over time.
Roth contributions
Similarly, if you’ve made contributions to a Roth, you can withdraw those contributions at any time without taxes or penalties. However, you can’t take out earnings unless you meet certain criteria.
Home Equity Line of Credit
A home equity line of credit (HELOC) is a loan secured by your home, meaning your property is used as collateral. Instead of a fixed loan amount, you're given a credit line and can borrow up to that limit, similar to how a credit card works, over a specified period. The interest rate is typically variable, which differs from a home equity loan. As Bankrate explains:
To access the credit line, you use checks or a card specifically issued for this purpose, which resembles a credit card. Lenders often require an initial withdrawal when you set up the loan, a minimum amount to be withdrawn each time you access the line, and a minimum balance to remain outstanding.
Of course, this option isn't available to everyone (homeownership is required), and your home serves as collateral if you fail to repay the loan. But it can be a way to access needed funds.
HSA Withdrawal
Another potential source of emergency funds, according to Kiplinger, is your HSA. Here’s how it might work:
If you've already used other funds to cover medical expenses, you can save the money you contribute to your HSA and use it as an emergency backup fund. As long as you match withdrawals with eligible medical expenses you’ve incurred since opening the account—no matter how far back—this is possible. Be sure to keep a record of receipts for the eligible medical expenses you’ve paid for.
In other words, if you have an HSA and have already paid for medical expenses out-of-pocket, you may be able to reimburse yourself later to cover an emergency, as long as you keep your receipts (otherwise, it’s wise to save your HSA funds for medical costs in retirement, if you’re able to do so).
If none of these options are available to you, it’s time to focus on building that emergency fund.
