Emergency fund opinions | Page 2 | TigerDroppings.com

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Teddy Ruxpin
LSU Fan
New Orleans, LA
Member since Oct 2006
19421 posts

re: Emergency fund opinions


I would hope that someone isn't having an emergency every year. Either they are very unhealthy, have something else going on, or have the worst luck of all time.

Obviously, if you get a market downturn AND an emergency in year 1 that would obviously suck.

However, if you are building a substantial Em Fund over a few years, I would think that risk goes down in each year, as you contribute more dollars to the fund.

But I will say that it probably isn't for every one, even if the mathematical odds favor doing so.






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Jwodie
LSU Fan
New Orleans
Member since Sep 2009
5675 posts

re: Emergency fund opinions


You guys are confusing me with the Roth IRA talk. I already have a regular 401k toward which I contribute a portion of my pre-tax salary, and an emergency fund that I've stockpiled in a low interest savings account, which obviously isn't ideal. Would it be prudent to take a chunk of those liquid (now unfortunately post-tax) savings and put them into a Roth IRA? What ultimately would be the best use of any savings I currently have that go beyond what is needed for a sufficient emergency fund?

Appreciate all the insight so far.



This post was edited on 2/12 at 10:41 am


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Teddy Ruxpin
LSU Fan
New Orleans, LA
Member since Oct 2006
19421 posts

re: Emergency fund opinions


quote:

You guys are confusing me with the Roth IRA talk. I already have a regular 401k toward which I contribute a portion of my pre-tax salary, and an emergency fund that I've stockpiled in a low interest savings account, which obviously isn't ideal. Would it be prudent to take a chunk of those liquid (now unfortunately post-tax) savings and put them into a Roth IRA? What ultimately would be the best use of any savings I currently have that go beyond what is needed for a sufficient emergency fund?


I would say if you have the money to do so, max out your 401K match, then your Health Savings Account if you qualify for one/have one, and your IRA.

The debate about putting your emergency fund in the IRA is an academic one and may not be for you.

You can do:
401K, HSA, IRA, Separate Em Fund account

OR

401k, HSA, IRA (including Em funds).

Its up to you.



This post was edited on 2/12 at 10:48 am


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Sigma
Michigan State Fan
Fairhope, AL
Member since Dec 2005
2035 posts

re: Emergency fund opinions


It's generally a good idea to have retirement savings in both pretax (401k, Trad IRA) and post tax (Roth) accounts. I would contribute up to the limit in the 401k to get the employer match, then max out the Roth, then add more to the 401k if you need to, in that order. Your low interest savings account is a good place for your emergency fund. Only you can decide what's a comfortable amount there.

I can't comment on HSAs...don't have the option for one.






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Sigma
Michigan State Fan
Fairhope, AL
Member since Dec 2005
2035 posts

re: Emergency fund opinions


quote:

I would hope that someone isn't having an emergency every year. Either they are very unhealthy, have something else going on, or have the worst luck of all time.

Obviously, if you get a market downturn AND an emergency in year 1 that would obviously suck.

However, if you are building a substantial Em Fund over a few years, I would think that risk goes down in each year, as you contribute more dollars to the fund.

But I will say that it probably isn't for every one, even if the mathematical odds favor doing so.








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Jwodie
LSU Fan
New Orleans
Member since Sep 2009
5675 posts

re: Emergency fund opinions


quote:

It's generally a good idea to have retirement savings in both pretax (401k, Trad IRA) and post tax (Roth) accounts.


That cleared up a lot of confusion already - that being whether I was able to contribute pre-tax monies into a Roth account. If not, then that clearly would be an option for me in moving around liquid savings.






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Teddy Ruxpin
LSU Fan
New Orleans, LA
Member since Oct 2006
19421 posts

re: Emergency fund opinions


quote:

That cleared up a lot of confusion already - that being whether I was able to contribute pre-tax monies into a Roth account. If not, then that clearly would be an option for me in moving around liquid savings.


Roth IRA money is all post-tax contributions. That is why when you withdraw from a ROTH you don't get penalized because the money has already been taxed.

You do get taxed if you withdraw "earnings" from the ROTH. AKA the return on your investments is taxed if withdrawn because that is "new money"



This post was edited on 2/12 at 11:07 am


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Jwodie
LSU Fan
New Orleans
Member since Sep 2009
5675 posts

re: Emergency fund opinions


Makes sense.



And the max contribution to a Roth is $5,500 per year as of 2013? What are the tax benefits to having my money in a Roth account rather than a savings account?






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Teddy Ruxpin
LSU Fan
New Orleans, LA
Member since Oct 2006
19421 posts

re: Emergency fund opinions


quote:

I can't comment on HSAs...don't have the option for one.


Basically, HSAs were set up so had a sheltered account from which you could pay for medical expenses. However, if you never use the money for medical expenses, it can act like a "stealth IRA" and be used as a retirement account.

Therefore, if you have a High deductible health plan, you should open an HSA as it provides another avenue to invest money away from the tax man. 3,250 a year for individuals and 6-something for families.



This post was edited on 2/12 at 11:10 am


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Teddy Ruxpin
LSU Fan
New Orleans, LA
Member since Oct 2006
19421 posts

re: Emergency fund opinions


quote:

And the max contribution to a Roth is $5,500 per year as of 2013? What are the tax benefits to having my money in a Roth account rather than a savings account?


The easy benefits:

You don't pay taxes on your earnings , so your money grows tax-free until either A) withdrawal not following distribution rules, or B) the government decides to be an a-hole and start taxing them.

The other benefit: You can invest in whatever you wish with a ROTH IRA so your ROI should be a whole lot higher than if the money sat in a savings account.

Of course, going with a ROTH vs. a Traditional IRA is a different exercise and depends on the individual circumstances. Gonna have to google all that because that's when I'm not too good with this stuff.



This post was edited on 2/12 at 11:43 am


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Jwodie
LSU Fan
New Orleans
Member since Sep 2009
5675 posts

re: Emergency fund opinions


Thanks.







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Teddy Ruxpin
LSU Fan
New Orleans, LA
Member since Oct 2006
19421 posts

re: Emergency fund opinions


quote:

Thanks.


No problem.

Let me add that WHO you open your IRA with is also important. This is because companies will give you certain benefits, such as no commissions on trades that involve their securities. So, figure out what you want to invest in and what company offers it is a good starting point and then go to the company that gives you the best deal/way to achieve what you want to do.






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ds1tiger
LSU Fan
Closer than you think
Member since Apr 2006
243 posts

re: Emergency fund opinions


quote:

You don't pay taxes on your earnings until you start withdrawing the money, so your money grows tax-free until either A) withdrawal, or B) the government decides to be an a-hole and start taxing them.


You never pay taxes on your earnings as long as you follow the distribution rules.






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Teddy Ruxpin
LSU Fan
New Orleans, LA
Member since Oct 2006
19421 posts

re: Emergency fund opinions


quote:

You never pay taxes on your earnings as long as you follow the distribution rules.


My bad. I'm far from 59.5 years old so it eludes the mind at times. Fixed it.



This post was edited on 2/12 at 11:44 am


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