For those still mucking out after super-storm Sandy
Homeowners are in a cash crunch after superstorm Sandy. They need repairs, but insurance money hasn’t materialized yet. Desperate, many are taking money from their retirement funds. That’s not ideal.
What’s a better fix for a post-Sandy liquidity crisis?
1. Borrow, don’t withdraw. If you’re under age 59 ½ and withdraw from your 401k, you’ll pay income taxes and a 10 percent penalty. Borrow and pay no taxes. You pay yourself interest on the loan, instead of a bank. You can typically borrow 50 percent of your 401k balance, up to $50,000, says Jesse Giordano, a certified financial planner with Morgan Stanley in Great Neck.
2. Tap your life insurance? First, read your policy. Can you access your savings penalty-free?
3. Avoid mistakes. Don’t get a payday loan. “The interest rates are extremely high, you’ll wind up taking on other loans to pay for the original one,” says Howard Dvorkin, founder of Consolidated Credit Counseling in Fort Lauderdale.
4. Don’t take money from an IRA because it must be repaid in 60 days. “What if you don’t get your money in time?” warns Ron Roge, chairman, R.W. Roge & Co. in Bohemia.
5. Explore options. “If your mortgage is backed by Fannie Mae or Freddie Mac you may be able to get a forbearance program,” says David Bakke, a financial columnist with MoneyCrashers.com.
6. Use your home equity line. The interest you pay may have tax advantages, ask your tax adviser. Says Leslie Tayne, a financial attorney in Melville, “Recovering from a disaster is stressful, but without being careful, you could find yourself deeper in debt and incurring even more stress.”