Income Unexpectedly Drop due to the Pandemic?

Here are 6 Things to Consider if You Need Cash Quickly

Many of us need to cover emergency expenses during the pandemic. However, before you increase expensive credit card or get a personal loan, you should consider tapping other not-so-obvious sources of cash. The interest and other charges may prove to be cheaper over the long run. However, you should carefully study both the benefits and risks before you make a move, as well as any tax consequences.

1

Take a hardship withdrawal or loan
from a 401(k) plan

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Many people may be aware that they can borrow from their 401(k), but they may not understand the special coronavirus rules recently put into place. For example, the Coronavirus Aid, Relief and Economic Security Act (CARES Act) which passed in March 2020 provides temporary relief and allows people to borrow twice as much from their 401(k) retirement plan. Eligible participants can now borrow all the money that has vested in their plan up to $100,000.

  • A fee may apply and it is a loan, so you generally need to repay it within 5 years plus pay interest – although the interest goes back into your 401(k)
  • If you can't or don't repay it, you can be faced with a 10% penalty for withdrawing money early plus incur taxes on the whole amount as income
  • Your 401 (k) funds won't grow as much, as the withdrawn money has to come from cashing out investments in your plan
  • If you withdraw money and the stock market goes up, you lose out on the gains from your withdrawn assets
  • • Not all companies allow 401(k) loans or the number of loans allowed may be limited, so taking a loan against your 401(k) now may impact your ability to take a loan in the future
  • If you leave your job, you may have to immediately pay back the loan or incur taxes and the withdrawal penalty above

2

Take a free withdrawal from
a fixed annuity

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If you have a Multi-Year Guaranteed Annuity, or MYGA, you may be able to take a partial withdrawal with no penalty. For example, the Nassau Simple Annuity lets you withdraw up to 5% of the contract value of the annuity each year – plus pays you a guaranteed rate of 2.20% for a 4- year Simple Annuity or 2.50% on the 6-year version.* Taking a free withdrawal from a MYGA can be one of the most attractive, penalty-free options. We are one of the first companies to offer an iOS app for MYGAs and it only takes about 10 minutes to apply.

  • Free withdrawals are subject to ordinary income tax, and if taken prior to age 59 1⁄2, a 10% IRS penalty may also apply.
  • Withdrawing principal will reduce the total amount of interest you will earn from the annuity contract
  • Withdrawals made during the life of the contract will reduce the amount payable upon annuitization
  • If you have multiple annuities you’ve purchased over various times, you may be withdrawing money from an annuity earning higher interest than you can earn from new products today

3

Borrow against a life insurance
policy with cash value

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A life insurance policy with sufficient cash value can be a quick source of cash. You can borrow against the cash value of the policy without a lengthy application process, there’s no credit check and it won’t impact your credit score. In addition, you generally do not have to pay income tax on the loans. You simply fill out a form and get payment. You can repay the loan when you wish and the rate is likely to be lower than a personal loan.

  • Your beneficiaries won't receive the full death benefit unless you repay the loan
  • If you don't stick to a repayment schedule, the loan's interest will be subtracted from the cash value
  • You could owe taxes if the policy lapses before you repay the loan

4

Use a home equity line
of credit

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If you own a home, you may want to consider borrowing from the value of it with a Home Equity Line of Credit (a HELOC). When the Federal Reserve cut interest rates, the rates on these loans also generally declined and the interest rates on HELOCs are among the lowest loan rates available.

  • If you can't repay the loan, you may be subject to additional fees and penalties
  • Unlike credit card debt, if you default on the loan, you could lose your house
  • Interest paid is generally not tax deductible unless the money is used towards improving your residence

5

Take a margin loan from your brokerage
account against your investments

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If you own stocks, you may be able to avoid selling them and borrow against their value. This is a bit like having your cake and eating it too. Margin loans can be even less expensive than HELOCs, and you continue to earn gains on your portfolio which stays intact. While the rates are generally lower than other loans , the risk can be very high, as you may have to immediately repay the loan if the value of your portfolio drops significantly.

  • If the value of your brokerage account declines below a required level, your broker can make a “margin call” requiring you to deposit more cash or securities or pay back the loan
  • If you receive a margin call, you may need to sell holdings and it could trigger tax liabilities
  • If you can't meet the minimum amount required, the broker is allowed to start liquidating your securities

6

Take Social Security early and request
a lump sum distribution

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If you've reached your full retirement age, you can start taking your Social Security benefits and request a "lump sum" distribution, providing you with an amount of up to six months of your benefits payments at once.

  • Your monthly benefit will decrease to what you would have received had you applied for the benefit 6 months earlier
  • Taking Social Security early will reduce the size of your monthly check versus delaying until a later age
  • There are potential tax and other consequences to receiving a large Social Security payment

*Interest rate as of July 1, 2020 subject to change. This is a brief description of Nassau Simple Annuity and is meant for informational purposes only. Please refer to your Contract for any other specific information including limitations, exclusions and charges.

Important Disclosures

The information above is intended for use by the general public and is not individualized to address any specific objective. It is not intended as investment, tax or financial advice. Your use of this information is at your sole risk. Please consult with a financial advisor and tax professional before taking any specific action.

Annuities are long-term contracts. Annuities held within qualified plans do not provide any additional tax benefit. With certain exceptions, surrender charges apply to withdrawals taken during the initial guarantee period and a market value adjustment, which may increase or decrease the amount received upon withdrawal, may also apply at any time.

All or a portion of amounts withdrawn are subject to ordinary income tax, and if taken prior to age 59 1⁄2, a 10% IRS penalty may also apply. Nassau does not provide tax, financial or investment advice, or act as a fiduciary in the sale or service of the product. Consult a tax advisor or financial representative about your specific circumstances.

Product features, options and availability may vary by state. Guarantees are based on the claims-paying ability of the issuing company.

Nassau Single Premium Deferred Fixed Annuities (ICC18IFDAP, 18IFDAP) are issued by Nassau Life and Annuity Company (Hartford, CT). In New York, annuities (Form 17IMGA) are issued by Nassau Life Insurance Company (East Greenbush, NY). Nassau Life and Annuity Company is not authorized to conduct business in MA, ME and NY, but that is subject to change. Nassau Life and Annuity Company and Nassau Life Insurance Company are subsidiaries of Nassau Financial Group. The insurers are separate entities and each is responsible only for its own financial condition and contractual obligations.

IOS is a trademark or registered trademark of Cisco in the U.S. and other countries and is used under license.

Insurance Products: NOT FDIC or NCUAA Insured, NO Bank or Credit Union Guarantee
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