Is It a Good Idea To Use Your ROTH IRA as Your Emergency Fund?
I just got done reading a post from MyMoneyBlog that asked if you could really withdrawl from your ROTH. My first reaction was, sure, good idea! It’s a good investment vehicle that can draw good returns on good investments. Why not! But then I got to thinking I could invest that money elsewhere, after-tax in generally the same funds in the same way.
People seemed to morph the conversation into using the ROTH as an Emergency fund vehicle and skipping that step in the all important 10-step program of where you want to put your funds; primarily #1 for some folks (including me) which is to fund 2-6 months of immediate liquid funds in a high yield savings or MMA. MUCH better idea I think.
Your ROTH IRA should be specifically for that. Retirement. Taking funds out prematurely may be possible tax-wise, but retirement-wise it could be the dagger in your portfolio! Taking $ out of there is going to kill the gains you’re making on that money over the life of your investment. I highly recommend keeping both entities separate. Keep a E-fund AND a ROTH IRA. You’ll thank me when you turn 59 1/2…
Filed Under: Emergency fund • ROTH IRA • advice
[...] Is it a good idea to use your ROTH IRA as your Emergency fund? @ myinvestingblog.com — I would never use my retirement as an emergency fund. However, I think there’s a merit to this, which I will discuss in the near future. [...]
[...] The Roth IRA had an advantage when it comes time for disbursement of the account. With a Roth IRA, disbursements are tax free but these disbursements must be qualified. Contribution funds can be withdrawn at any time, penalty free, but don’t use that to fund anything else! A ROTH should be for retirement! Don’t use it for anything else! [...]
[...] this) but you can take out the PRINCIPAL that you have put in to it at no tax consequence, but suggest against it – see response #1 at the top of this page and check out this post on it here. 3. Just contribute [...]
[...] Oh David, you’ve lost me now. I’m no longer on your side. I think you may need some education on this front also.CLEARLY the cards are “not for everybody,” they’re more like “not for ANYBODY.” This whole paragraph is ridiculous, what confidence can you get by undermining the whole point of a 401k plan? He goes on to mention that “their savings won’t be locked up for decades.” Oh, Dear God, help us all. First of all, that is the whole point of compounding interest, and secondly it is NOT savings. Savings are for Emergency funds. Retirement plans are for RETIREMENT! [...]
“Your ROTH IRA should be specifically for that. Retirement.” I couldn’t have said it better. Two completely separate goals. Emergency Fund absolutely must be liquid. You don’t want to be pulling out of mutual funds or selling ETFs at a random time because your car breaks down. ING Direct savings account is a great place to keep your emergency fund. It’s what I use anyway.