If you are working:

STOP all contributions into your retirement account. You will be able to relocate these contributions into a saving account to build some short term liquidity. Even if you have a match, temporarily stop all contributions until you build a short term cushion.

If you are currently working and have a 401 (k), look into doing a “in service withdrawal“. Many times people are unaware that they can do something like this while they are still employed. You will want to make sure that you transfer the money directly into an IRA to avoid any unnecessary taxes. This is considered a Trustee to Trustee transfer. Once this transfer happens, you will now be able to “unlock” various money strategies.

a. You will have many different investment options that were not available in your current 401 (k) or retirement plan. One idea is a fixed index annuity, which will guarantee any money invested. The idea here is to not to lock in your losses, but to re-allocate these dollars, ride the market up and prevent loss from ever happening again.

b. You will be able to implement a 72 (t) distribution, which can be calculated as a periodic and equal instalments based on your life expectancy. There are 3 different ways to calculate this strategy, but I like the equal instalments. These distributions will be taxable income to you with NO 10% early tax penalty, but now you just created an additional income stream that can be saved toward alternative savings and investments. These distributions should be SAVED into an account to build short term liquidity. This can potentially benefit you in the long run with any increase in income tax rates.

If you receive a Federal Tax Refund, you can contact the human resource department where you work and increase your exemptions on your Federal withholdings W-4. You can go as high as 99, but I would suggest staying under 10 to prevent any unnecessary paperwork. A tax refund is simply an interest free loan to the government and may not be available to you when needed. It may fluctuate year after year due to tax laws changes and business conditions and with good planning this refund is a potential source of cash inflow which can be saved and utilized as a “cushion”.

If you are out of work:

Roll all old 401 (k)’s into an IRA, so you can implement a 72 (t) distribution. There are several benefits to doing something like this.

a. This will create an additional income stream while you are out of work. This income stream is taxable income, but there is NO 10% early tax penalty on this money. This money can be used to pay your mortgage or put food on your table.
b. Your annual income will be lower this year and this income can potentially be taxed at a lower rate.
c. Once you find employment, you will then be able to re-allocate this money into a saving account to build a safety net for any short term liquidity needs.
d. You could use this additional income steam to pay the mortgage on a beach house.

If you have an annuity, you can implement a 72 (q) strategy, this is similar to a 72 (t). The only difference is the money is coming out of an annuity vs. an IRA. Again this money can be used to pay your mortgage or put food on your table.

Borrow money from an insurance company if you own a “whole life insurance policy”. You will be able to access 100% of your cash values to cover any unexpected expenses or monthly costs. The best part is you are borrowing the insurance company’s money, so your cash value is still growing inside the policy. This loan will not impact your credit score, and you don’t have to pay this loan back since it is considered a non-recourse loan. All loans, even above basis will not be treated as income, just like a home mortgage. IRC 7702