Surviving a sudden job loss

The LA Times has a fantastic article on how to survive a job loss. In part the article reads:

Tap savings strategically

If you can't avoid drawing on your savings, it's better to take money from some types of accounts than from others.

Those who need to tap savings should realize that pulling money out of some accounts can be costly. It's wise to consider ways to liquidate assets that cost the least in tax and investment return. So, where do you pull money from first?

The best place to turn would be a checking or savings account at a bank. Such accounts earn little interest in today's market, and withdrawing from them won't trigger a tax bill.

If that's not enough, you can start liquidating investments that are in taxable accounts. You may have to pay capital gains tax on stocks you sell, but generally no more than 15% if you've held the assets for at least one year.

If you have money in a variable annuity, you may be able to borrow against the equity in the account. But that could prove expensive in the long run, depending on how much you had been earning on the invested assets. Read your annuity contract or ask your financial advisor.

Your last resort should be tapping a tax-deferred retirement account. Generally speaking, money pulled out of these plans is fully taxable as ordinary income, which can mean a much higher rate than 15%. In addition, you get hit with a 10% federal penalty. State income taxes and penalties are also likely to apply to your withdrawals.

(It is possible to tap a retirement account without penalty by using the money to buy a stream of regular payments for the rest of your life. But doing that has drawbacks, especially if you're young and likely to return to work, so you should consult a qualified advisor before choosing this option.)