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Roth IRA for Emergency Fund
Posted on 12/11/19 at 6:13 pm
Posted on 12/11/19 at 6:13 pm
What are some cons to utilizing a Roth IRA as an emergency fund rather than a savings account? My wife and I both have employer 401ks that offer very low fees, so the Roth IRA would be a supplement to our normal retirement savings.
Pros are obviously being able to withdraw contributions at any time, all while having my money growing (would likely have a moderate risk allocation).
Apologies if this topic has already been covered.
Pros are obviously being able to withdraw contributions at any time, all while having my money growing (would likely have a moderate risk allocation).
Apologies if this topic has already been covered.
5
Posted on 12/11/19 at 6:27 pm to Downtown Devin Brown
Because you could need that money following a prolonged economic downturn which would mean you'd be taking out at the worst possible time. Hopefully your investments didn't take a big hit.
Posted on 12/11/19 at 7:39 pm to JohnnyKilroy
I keep my emergency fund liquid.
Posted on 12/11/19 at 8:39 pm to Downtown Devin Brown
Depends on how much money you have.
If you can fund the ROTH and emergency fund then do that.
If you only have say, $4,000 after 401k contributions, you should put it in the ROTH and just keep it in a money market or similar investment. You can have access to the money within a few days.
Reason being is every year you don't contribute to the ROTH you have an opportunity cost of getting preferential tax treatment.
Later on in life if you make more money, you can just change that money market investment into more aggressive allocation.
If you can fund the ROTH and emergency fund then do that.
If you only have say, $4,000 after 401k contributions, you should put it in the ROTH and just keep it in a money market or similar investment. You can have access to the money within a few days.
Reason being is every year you don't contribute to the ROTH you have an opportunity cost of getting preferential tax treatment.
Later on in life if you make more money, you can just change that money market investment into more aggressive allocation.
This post was edited on 12/11/19 at 8:43 pm
Posted on 12/12/19 at 7:51 am to Downtown Devin Brown
I have thought about this a few times and the following were the main issues I have with it:
1) Dark days requiring an emergency fund (like being unemployed) are more likely to happen during down economies. The odds are higher you'll be pulling money out at the worst time and lose money.
2) Due to IRA yearly limits, you can't put the money back. There is no way to catch back up.
3) "Emergency" funds could very well be dire emergencies. If it is an actual emergency fund, cash seems to be the only sensible option for immediate use in an emergency. If it is just a rainy day fund, then maybe not being cash is less of an issue.
Just some things to consider, IMO.
1) Dark days requiring an emergency fund (like being unemployed) are more likely to happen during down economies. The odds are higher you'll be pulling money out at the worst time and lose money.
2) Due to IRA yearly limits, you can't put the money back. There is no way to catch back up.
3) "Emergency" funds could very well be dire emergencies. If it is an actual emergency fund, cash seems to be the only sensible option for immediate use in an emergency. If it is just a rainy day fund, then maybe not being cash is less of an issue.
Just some things to consider, IMO.
Posted on 12/12/19 at 8:41 am to Downtown Devin Brown
No one should focus on having what's called an "emergency fund". Negative connotation and very Dave Ramsey-esque.
Keep liquid funds in checking, savings, money market, cash value life policies, CD, etc., liquid for whatever reason, especially opportunity. There's a very rare emergency ever, unless you think buying new tires or a washing machine an "emergency". Too much drama being marketed by charlotans out there.
Having to access marketable securities has a time element involved. So Roth, no so liquid.
Eta: And the emotonal downvotes ensue. Sorry for your distress.
Keep liquid funds in checking, savings, money market, cash value life policies, CD, etc., liquid for whatever reason, especially opportunity. There's a very rare emergency ever, unless you think buying new tires or a washing machine an "emergency". Too much drama being marketed by charlotans out there.
Having to access marketable securities has a time element involved. So Roth, no so liquid.
Eta: And the emotonal downvotes ensue. Sorry for your distress.
This post was edited on 12/12/19 at 12:41 pm
Posted on 12/12/19 at 9:07 am to notsince98
quote:
1) Dark days requiring an emergency fund (like being unemployed) are more likely to happen during down economies. The odds are higher you'll be pulling money out at the worst time and lose money.
2) Due to IRA yearly limits, you can't put the money back. There is no way to catch back up.
3) "Emergency" funds could very well be dire emergencies. If it is an actual emergency fund, cash seems to be the only sensible option for immediate use in an emergency. If it is just a rainy day fund, then maybe not being cash is less of an issue.
1) Luckily me and my wife work in very safe fields. Even in the darkest days of my industry, my employer (government) used the opportunity to hire up.
2) "catching back up" seems to not be that important since it is not my main retirement account. It would just be a supplement to my 401k and pension.
3) This seems to be the biggest draw that I can see. Although I'm having trouble thinking of examples of emergencies where CASH is needed instantly.
Maybe my biggest issue in seeing the magnitude of the "cons" is defining "emergency".
Posted on 12/12/19 at 11:44 am to Downtown Devin Brown
Twice in the last 15 years I utilized the 90 day no penalty for early withdraw from a Roth mutual fund.
Obviously the money isn’t making money while it’s not in the account and depending on the funds price when you took the money out compared to when you put it back in there.
One time I had broken an ankle and the other was after some hurricane damage. I replaced all the funds before the 90 days was up but I’ve always considered it a back up plan of sorts.
Obviously the money isn’t making money while it’s not in the account and depending on the funds price when you took the money out compared to when you put it back in there.
One time I had broken an ankle and the other was after some hurricane damage. I replaced all the funds before the 90 days was up but I’ve always considered it a back up plan of sorts.
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