Even if you have self control, I think it's a lot less painful to pay for an emergency with cash from a low interest account than it would be to pay for an emergency with tax advantaged investment funds.

You can only contribute $5,500 to a Roth annually, and you cannot replace it. So if you pull the money for an emergency, you lose the money AND the opportunity ( And just in case somebody wants to use this fact to argue with me: YES, I KNOW THERE IS NO frickING PENALTY, THAT'S NOT THE frickING POINT).

But if use my MM account cash for an emergency, I only lose the cash. I can replace emergency cash as much as I want. And Everybody, at some point, WILL have an emergency, so you are going to need the cash at some point, consider emergency funds as already spent.

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Posted by Teddy Ruxpin

Member since Oct 2006

39604 posts

Posted on 4/24/13 at 6:36 pm to Vols&Shaft83

We went over this before, but the issue was in the scenario where you have just enough cash to either put it in your ROTH (say for tax year 2012 in March 2013) or let it sit in the account outside.

Since you can only do one or the other, the ROTH is better because you can contribute to it and if the emergency doesn't happen, you are good. If the emergency happens, you're still good. If you just put it in the Emergency fund outside the ROTH and the emergency doesn't happen, you lost out.

I can actually speak on this issue because it literally just happened to me

This post was edited on 4/24/13 at 6:38 pm

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Posted by Siderophore

Member since Nov 2010

3338 posts

Posted on 4/25/13 at 12:05 am to Vols&Shaft83

While you are right, not everyone maxxes out their Roth, which is the only time you scenario applies.

Also, not everyone is in a tax bracket where it is adventagous to put money in a Roth for retirement.....and it only takes precedence again when you have already maxxed out your 401k.

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