10 sources of emergency cash, ranked from best to worst

By Christine Benz of Morningstar

If unexpected expenses exceed your emergency fund, here are some alternatives to consider:

1. Utilize your emergency fund or short-term securities

Emergency funds should consist of highly liquid investments such as bank savings accounts and money market accounts that are held outside of tax-sheltered accounts.

2. Assess low-risk assets in taxable accounts

Review your taxable holdings in brokerage accounts for potential securities that could be sold to raise funds. Consider liquidity, tax implications, and any commissions that may apply.

3. Tap into Roth IRA contributions

While it’s not ideal to dip into retirement funds, Roth IRAs offer flexibility with fewer restrictions compared to other retirement accounts. You can withdraw contributions without penalties, although this reduces your retirement savings.

4. Consider life insurance cash values

If you have built up cash values in whole life or variable universal life insurance policies, these can serve as another source of emergency funds. You can withdraw money or borrow against the cash value, but be mindful of interest rates.

5. Evaluate a 401(k) loan

While borrowing from your 401(k) may be preferable to a hardship withdrawal, it impacts your retirement savings. You will need to repay the loan with interest, potentially hindering future contributions.

6. Explore a home equity line of credit

A HELOC can offer reasonable interest rates if you have good credit and substantial home equity. However, unfavorable borrowing conditions may apply if your credit is less than perfect.

7. Consider hardship withdrawals from a 401(k)

Hardship withdrawals do not require repayment but are subject to taxes and penalties. Only consider this option as a last resort.

8. Investigate a reverse mortgage

Older homeowners can leverage a reverse mortgage to access home equity without immediate repayment obligations. Interest rates vary, so research carefully.

9. Look into margin loans

A margin account allows you to borrow against securities in your brokerage account. This option is suitable for those who prefer not to sell assets but come with risks and potentially high interest rates.

10. Use credit cards cautiously

Credit cards should be a last resort due to high interest rates and potential long-term financial consequences. Minimize credit card usage to avoid financial strain.

This article was provided to The Associated Press by Morningstar. For more personal finance content, visit https://www.morningstar.com/personal-finance

Christine Benz is the director of personal finance and retirement planning at Morningstar.