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Roth IRA- is it considered a liquid asset
Posted on 1/15/13 at 10:41 am
Posted on 1/15/13 at 10:41 am
If I get in a pickle (lose my job or a major family health issue), how easy it it to take money out? I assume that I can take out what put in withou penalty, but will be penalized for taking out the earnings before I am of age. Is this correct?
2
Posted on 1/15/13 at 11:02 am to Springlake Tiger
Some posters here recommend using your Roth as an emergency fund.
It's not liquid in that there could be a time delay in receiving funds, so make sure you have enough in savings for immediate emergencies giving you a week cushion at least.
But you are correct, you are free to withdraw all contributions completely penalty and tax free.
Also, worth meationing is that you are allowed to remove up to 10k of earnings on top of that penalty free for buying your first home.
The only penalty is the opportunity cost of not being able to put that money back, and the compound interest you could have earned.
You can only add 5k a year to a non-401k Roth.
It's not liquid in that there could be a time delay in receiving funds, so make sure you have enough in savings for immediate emergencies giving you a week cushion at least.
But you are correct, you are free to withdraw all contributions completely penalty and tax free.
Also, worth meationing is that you are allowed to remove up to 10k of earnings on top of that penalty free for buying your first home.
The only penalty is the opportunity cost of not being able to put that money back, and the compound interest you could have earned.
You can only add 5k a year to a non-401k Roth.
This post was edited on 1/15/13 at 11:03 am
Posted on 1/15/13 at 11:14 am to Siderophore
2013 max contributions are now up to $5500 or $6500 if you're over 50.
The liquidity of a Roth IRA depends on what you have your money in. If it came down to it, you could just charge an emergency to a credit card while your money takes a couple days to transfer.
The liquidity of a Roth IRA depends on what you have your money in. If it came down to it, you could just charge an emergency to a credit card while your money takes a couple days to transfer.
Posted on 1/15/13 at 11:22 am to gatorsimz
That is news to me, and as a Roth is my primary plans for retirement, good to hear.
My only reservation over using a Roth as an emergency funds is how badly you are short changing yourself on potential tax free growth.
Very few legal tax shelters left.
Why not take full advantage of one offered
My only reservation over using a Roth as an emergency funds is how badly you are short changing yourself on potential tax free growth.
Very few legal tax shelters left.
Why not take full advantage of one offered
Posted on 1/15/13 at 11:24 am to Siderophore
I personally put 2% of my checks in a savings account, and 3% into a taxable stock account for my emergency funds
That way, things are really dire if I get into my Roth
That way, things are really dire if I get into my Roth
This post was edited on 1/15/13 at 11:25 am
Posted on 1/15/13 at 12:06 pm to Siderophore
I just recently moved some money out of my savings account emergency fund into the Roth for the same purpose so I could hit my 2012 max contribution.
I can't pass up any potential earnings that the money wouldn't earn just sitting in an account. And when I get further savings I can always go back and refill that savings account, but I don't really see the point when I have a credit card with a 10,000 limit and only have to wait a few days for a Roth transfer.
We're talking super screwed if you need that much money in less than a week. But I don't own a home, have kids, or married so maybe there are some crazy expenses that come up that are non medical/unemployment related that come fast.
I can't pass up any potential earnings that the money wouldn't earn just sitting in an account. And when I get further savings I can always go back and refill that savings account, but I don't really see the point when I have a credit card with a 10,000 limit and only have to wait a few days for a Roth transfer.
We're talking super screwed if you need that much money in less than a week. But I don't own a home, have kids, or married so maybe there are some crazy expenses that come up that are non medical/unemployment related that come fast.
This post was edited on 1/15/13 at 12:07 pm
Posted on 1/15/13 at 12:39 pm to Springlake Tiger
A Roth SHOULD NOT be an emergency fund. At the very worst it should be an emergency fund for the emergency fund's emergency fund. Early withdrawal may not be penalized, but you're penalizing yourself. In an absolute worst case scenario is the only time it's acceptable.
If you have a 6 month emergency fund in a money market/ high yield savings, decent health insurance or HSA, and you have long term disability insurance, you shouldn't ever need to touch your Roth.
If you have a 6 month emergency fund in a money market/ high yield savings, decent health insurance or HSA, and you have long term disability insurance, you shouldn't ever need to touch your Roth.
Posted on 1/15/13 at 1:05 pm to Siderophore
I've always been curious about withdrawing contributions penalty free
on my Roth IRA's online account management screen, if I go to sell shares, I get a warning that I will be penalized for any early withdrawls. they make no distinction between contributions and gains
on my Roth IRA's online account management screen, if I go to sell shares, I get a warning that I will be penalized for any early withdrawls. they make no distinction between contributions and gains
Posted on 1/15/13 at 1:27 pm to Siderophore
quote:
But you are correct, you are free to withdraw all contributions completely penalty and tax free.
I'm not currently looking at my tax facts, but you may need to research a 5 yr. period on contributions held before it's considered penalty-free for distribution.
To answer the OP, I do not consider the Roth IRA a liquid asset.
Posted on 1/15/13 at 1:34 pm to BestBanker
That is a somewhat incorrect.
The account needs to be at least 5 years old before you can withdraw earnings tax free, and rollover contributions need to stay for 5 years before you can withdraw them tax free.
But you can pull out whatever contributions you put in, whenever.
And when doing Roth withdrawals, it will pull in the order of:
Contributions, conversion, and finally earnings.
The account needs to be at least 5 years old before you can withdraw earnings tax free, and rollover contributions need to stay for 5 years before you can withdraw them tax free.
But you can pull out whatever contributions you put in, whenever.
And when doing Roth withdrawals, it will pull in the order of:
Contributions, conversion, and finally earnings.
This post was edited on 1/15/13 at 1:36 pm
Posted on 1/15/13 at 1:58 pm to Siderophore
quote:
The account needs to be at least 5 years old before you can withdraw earnings tax free, and rollover contributions need to stay for 5 years before you can withdraw them tax free.
You better make sure of your assumptive statement of fact before you spout your response.
Earnings are NOT income tax free if you early withdraw prior to age 59.5 yrs of age.
And a pre-5 year withdrawal of your deposit will be penalized.
Google helps those that use it.
eta: And I sincerely hope you do not work in the area of tax planning or any other financial arena.
This post was edited on 1/15/13 at 2:00 pm
Posted on 1/15/13 at 2:14 pm to BestBanker
Because I don't write every post as if I was writing a contract?
Yes, I am aware of the minimum age limit.
We were talking about being able to withdraw your deposit, not for an overview of every aspect of the Roth IRA.
You came in talking about 5 years, so I detailed the cases where the 5 year rule applies.
Jesus.
And again, wrong.
Not only you can withdraw your deposits tax/penalty free, there are cases where you can withdraw a deposit and the earnings it made in a given year tax/penalty free.
Although I can't begin to imagine the paperwork headache such a thing would cause.
Straight from the IRS page on Roth IRAs:
No, I don't work in taxes or any form of finance.
But given your user name, I can only presume that you do work in some form of finance.
And that is just sad that I am aware of more than you in anything associated with the field, as I only started to self teach for the past few years.
Yes, I am aware of the minimum age limit.
We were talking about being able to withdraw your deposit, not for an overview of every aspect of the Roth IRA.
You came in talking about 5 years, so I detailed the cases where the 5 year rule applies.
Jesus.
quote:
And a pre-5 year withdrawal of your deposit will be penalized
And again, wrong.
Not only you can withdraw your deposits tax/penalty free, there are cases where you can withdraw a deposit and the earnings it made in a given year tax/penalty free.
Although I can't begin to imagine the paperwork headache such a thing would cause.
Straight from the IRS page on Roth IRAs:
quote:
Withdrawals of contributions by due date. If you withdraw contributions (including any net earnings on the contributions) by the due date of your return for the year in which you made the contribution, the contributions are treated as if you never made them. If you have an extension of time to file your return, you can withdraw the contributions and earnings by the extended due date. The withdrawal of contributions is tax free, but you must include the earnings on the contributions in income for the year in which you made the contributions.
No, I don't work in taxes or any form of finance.
But given your user name, I can only presume that you do work in some form of finance.
And that is just sad that I am aware of more than you in anything associated with the field, as I only started to self teach for the past few years.
Posted on 1/15/13 at 2:23 pm to BestBanker
I believe there are some "qualified" exceptions for penalty-free early withdrawal of earnings (withdrawal before 59.5 old).
For example, I'm fairly sure qualified 1st time homebuyers can early withdrawal earnings for use towards the purchase of their home (penalty free). Another might possibly be education related. Someone should check me though.
And it is my understanding that contributions are always available for penalty-free withdrawal.
For example, I'm fairly sure qualified 1st time homebuyers can early withdrawal earnings for use towards the purchase of their home (penalty free). Another might possibly be education related. Someone should check me though.
And it is my understanding that contributions are always available for penalty-free withdrawal.
Posted on 1/15/13 at 2:26 pm to kennypowers816
quote:
I believe there are some "qualified" exceptions for penalty-free early withdrawal of earnings (withdrawal before 59.5 old).
There are.
Education and health care related are others.
But I don't know the precise details on the rules around them. Heck, I think even pulling out uniform distributions is another qualified distribution.
quote:
And it is my understanding that contributions are always available for penalty-free withdrawal.
Yep.
This post was edited on 1/15/13 at 2:30 pm
Posted on 1/15/13 at 9:27 pm to Vols&Shaft83
quote:
A Roth SHOULD NOT be an emergency fund.
Completely wrong.
It should be your second line of defense. You can pull out contributions at any time without any penalty whatsoever. In the meantime earnings are tax free. If you instead put money in a regular account you are paying taxes you don't have to pay if you'd put into a Roth.
Your first line of defense should be easy access to credit that you can quickly repay. There's nothing wrong with charging a thousand on your credit card provided you can pay it off with the next statement.
But there is basically no reason at all to have a standard savings account unless you're already maxing your Roth and have nothing better to do with extra cash.
Posted on 1/16/13 at 5:01 am to foshizzle
I completely disagree, yes you can withdraw without penalty, but you can't put the money back in, thus sacrificing potential long term gains. Why would you do that if you had liquid cash in a savings or money market account? You can replace those funds whenever you want.
I've always considered emergency funds to be insurance,not an ininvestment.
I've always considered emergency funds to be insurance,not an ininvestment.
Posted on 1/16/13 at 5:06 am to Vols&Shaft83
If I understand his viewpoint, that is the point.
He wants the emergency funds to hurt when using it, otherwise you'll risk using to buy a boat or something on a whim if it is just sitting in a savings account as opposed to an actual emergency.
Roth gives you the liquidity so that it CAN be used in an emergency even if it isn't a technically qualified distribution, but you don't have the opportunity cost from having 10k+ just sitting in a bank account doing little for you.
He wants the emergency funds to hurt when using it, otherwise you'll risk using to buy a boat or something on a whim if it is just sitting in a savings account as opposed to an actual emergency.
Roth gives you the liquidity so that it CAN be used in an emergency even if it isn't a technically qualified distribution, but you don't have the opportunity cost from having 10k+ just sitting in a bank account doing little for you.
This post was edited on 1/16/13 at 5:08 am
Posted on 1/16/13 at 5:29 am to Siderophore
I get that, but I assume if someone is disciplined enough to max out their Roth, they'd be disciplined enough to not spend their emergency cash on a new boat, lol.
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