Never mind what it looks like. That’s supposed to be a rock he’s looking under.
If you're a Zoom shareholder, tax expert, or bike shop owner, your financial health may have gotten a big boost from the coronavirus. But if you’re like many, the opposite is true. The CARES Act helped, but it didn’t plug every cash flow leak. And with the uncertain status of the economy and future stimulus benefits, money could get even tighter.
Next stop, 401k? Not if you can avoid it…
Yes, the CARES Act permits you to take up to $100,000 from your 401k penalty-free in 2020. But don’t forget! You are still subject to taxes on those withdrawals. Plus, that money will be out of the market, unable to benefit from any additional upside potential. The damage you do to your retirement could be irreparable.
So before you go there, check out these 19 sometimes overlooked ideas for easing a cash flow crunch. Many are actions you wouldn’t take in normal times. But these are anything but normal times, and a temporary “do the opposite” approach might be just what the doctor ordered.
Some ideas are zero-cost; others come with significant tradeoffs. They are big and small. Some are no-brainers to implement. Others are trickier and bear more analysis. Not all will apply. But by mixing and matching those that do, you might find the cash you need now while minimizing the hit to your long term financial health.
Big fat disclaimer! These ideas are intended to be informational and educational, and do not constitute financial or tax advice. Seek input from an independent financial professional to determine your best course of action.
Unused store credit or gift cards languishing in a drawer? Spend or exchange for cash.
If you’ve been travel hacking to amass frequent flyer miles or points, favor a credit card with a cashback reward instead. See if you can convert existing points to cash or products you need.
Review annual credit card fees. If yours are high, ask if they can be waived. If not, maybe downgrade to a cheaper card, or cancel some cards. (Note: This could affect your credit score.)
If you have health insurance through the Affordable Care Act, update the system to reflect your reduced income. That way, you receive the larger subsidy you’re due each month instead waiting until April for the IRS to refund it. (p.s. This isn’t just a good idea. It’s required by law.)
If you anticipate a tax refund for 2020, reduce income tax withholding or quarterly tax payments to better match your expected tax liability.
Ask your child’s college for a review of your financial aid package. You may qualify for more need-based aid.
Reevaluate vehicle use. For example, if you usually take the gas guzzler on your 30 mile commute, but your spouse’s Prius is sitting idle because he’s furloughed, maybe swap. Ask your insurer for a discount based on reduced mileage, or look into “per mile” insurance providers. Consider taking a car off the road, or experiment with downsizing to one car.
Reevaluate insurance. Your credit card may offer a better deal on cell phone insurance than your carrier. Find out if you’re eligible to stop paying it altogether. Ditto Private Mortgage Insurance. If the kids have launched and the mortgage is mostly paid off, do you still need all that life and disability coverage? Can you get a better deal elsewhere?
Making extra payments to buy more permanent life insurance? Consider stopping or exploring your options for tapping the cash value.
Reevaluate employee stock benefits. Consider selling shares or discontinuing participation in the stock purchase plan.
Prepaying your mortgage? Put that on hold for now. Ditto automatic monthly investments to taxable, IRA, and college savings plans.
If you're reinvesting dividends and interest on investments in a taxable account, have them paid out in cash instead.
Reduce your 401k contribution to no more than enough to get the full employer match.
Consider doing the same for your Flexible Spending Account or Health Savings Account if you are contributing more than you need for 2020 medical expenses.
Use tax-advantaged accounts such as 529, Coverdell, and Flexible Spending Accounts – not cash in savings – for qualified expenses.
If you’ve been investing your Health Savings Account for medical expenses in retirement (#2 and #5 in this article), consider switching to a more conservative allocation or even cash if you anticipate needing it for near term health care. Or look into getting reimbursed for previous years’ health expenses (#3 and #4). 65 or older? After that age, no penalty applies no matter what you withdraw money for.
Cash out paid time off.
Still employed, but anticipate a layoff? Now might be the time to refinance your mortgage or tap home equity before you no longer qualify.
If you hold investments in currently taxable accounts, consider tax loss harvesting to reduce your tax liability in 2020 and beyond.
If you implement any of these ideas, be sure to revisit those choices periodically. They are meant to be short term measures to shield you during these stormy times. No sense holding up an umbrella when the sun comes back out!
p.s. A big shout out to the Sacramento ChooseFI group for contributing their ideas. If you can think of others, please share in the comments below. Thanks!