Many of us may experience completely unforeseen projects that require finding cash fast. Finding liquidity within a rapidly changing investment environment can create a financial puzzle. What is the most efficient and least costly process to use your investment portfolio to bridge the gap for what is next?
Our client’s parents, who are in their 80’s, reversed their decision to move into an assisted living facility due to the pandemic. As an alternative living option, our client agreed to remodel their rental home to equip it for their parent’s physical needs. This required retrofitting bathrooms and kitchen to make the place wheelchair accessible…both costly upgrades.
My clients had been diligent about saving for retirement so they realized that now might be the best time to tap their account for cash. The question was “How do you begin to unwind and sell your investment portfolio to create the cash when you need it”?
Bonds that have benefitted from reduced interest rates are good candidates for liquidating first. Consider selling stocks that have remained stable and lost little value during the market downturn. Yes, your portfolio may become unbalanced in the short term and eventually, you’ll want to rebalance your portfolio but tough times take tough measures. Spend the money.
A note of caution, there may be tax implications in selling a stock so make sure you sell the stock with the lowest tax attached to it. If not, even though the stock may be down this year, you could still pay a hefty tax bill on the gains you earned since your original purchase.
Avoid using a credit card or high interest loans if you can. If you need a loan, you can borrow against your non-retirement investment account at an interest rate based on Libor, which is generally much less than interest rates attached to margin loans. With collateral loans, the money is available right away and doesn’t have costs involved as in a home equity loan, for instance.
This year, the CARES Act allows you to take up to $100.000 for an IRA or 401K. If you’re under 59 ½ years of age, you won’t even pay a 10% withdrawal penalty. No matter your age, you have three years to pay the federal income tax on the money and three years to pay it back. Paying it back should be a priority so you continue to receive long-term compounding power for your retirement.
If you’ve saved money for education expenses in a 529 plan, you can also tap this account. Be aware that if used for anything other than qualified educational expense, you’ll owe taxes on the money unless you repay the funds within 60 days.
Whether you’re a consumer, a student or a business owner, finding cash can be a daunting challenge. But challenging times require creative planning, and we’re here to support you with wise counsel and clear strategies.
Olson Wealth Group is a full service wealth management firm. With wise counsel and clear strategies, our experienced specialists provide tailored approaches that strive to maximize wealth. For more information, please visit OlsonWealthGroup.com
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The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendation for any individual.