Where to find cash after a disaster

Savings bonds, CDs and mutual funds

"People say, 'Oh I can't take my money out of a CD, there'd be a big penalty.' Often that penalty is very minimal and it's only on the interest," says Weade.

Weade says that with interest rates low, sacrificing some CD earnings is a pittance compared to paying interest rates on a life insurance loan or cash advance. Savings bonds are another quick cash resource, though you'll pay a three-month interest penalty if it is redeemed too early, reports the U.S. Treasury. In both cases, you'll pay income tax on any interest earned.

Of course, you can sell stocks (and realize a capital gain or loss accordingly) as well as mutual funds and annuities, but Weade says those taking this route should consult a financial adviser about tax issues and penalties.

Retirement and 529 accounts

If you have to borrow from your future to pay present obligations, so be it. According to the Securities and Exchange Commission, investors who pull funds out of a 529 plan for nonqualified education expenses will pay income tax and a 10 percent penalty on earnings. Those investing in plans that offer state tax incentives may have state tax consequences, too.

"The IRS does provide a 60-day window for you to withdraw funds from a traditional IRA or 401(k)" for rollover purposes, says Jones. As long as you deposit the same pretax amount into another eligible retirement plan, you won't pay taxes or penalties. The 60-day rule is tricky for larger withdrawals, Jones says. If you can't replace the funds in time, you'll pay income taxes and a 10 percent penalty on the taxable amount if you're under age 59½.

Roth IRA holders may withdraw their own contributions -- not earnings -- without tax or penalty. Traditional IRA holders may start taking penalty-free distributions on their accounts if they begin taking regular distributions, but specific rules apply.

Since taking early IRA distributions can severely disrupt your future retirement plans, "You wouldn't do that unless it was the only option," says Kirk Shamberger, a partner with CK Financial Resources in Colchester, Vt.

With 529 plans and IRAs, the problem is time. Regardless whether you get around the tax and penalty rules, pulling funds early limits the compound interest you can potentially gain from them in the future. A 401(k) loan is usually a better option. The IRS reports that 401(k) holders can borrow up to half of their account (a maximum of $50,000) tax-free, but funds must be repaid within five years in most cases.

The catch is that you have to stay with your current employer for the duration. "Should you lose your job and have a loan outstanding, you've got to pay it back within 30 to 60 days or you'll have to pay penalties," says Yellen.

Before pulling funds from any long-term investment, read the fine print and consult your tax adviser.


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