Best use of Roth

[Jammertime]

Hello, I’m just beginning to be intentional about investing for ER. My wife and I currently have close to 60k in retirement assets. She is currently out of work to care for new baby. We’re currently saving close to 20% on a single income.

I feel, however, as if I’m in the cusp of not having enough in my emergency fund and my income would be a stretch to max out a Roth for the year.

I’ve currently filled out 2019 contributions with a portion of our emergency fund in a money market account. Would it be a terrible idea to move another 6k of emergency fund to 2020 Roth while we build up enough cash reserves (1yr worth)?

Afterwards, convert one or both money market funds into our preferred stock mutual fund. Once we have enough on hand cash.

I just want to make sure I’m using all the space given to me.

Thanks

[Jammertime]

I suppose the other option would be, quit worrying. contribute what I can, then revisit at the end of the year.

[oneill225]

I recommend fully finding your Roth, if possible, and using it as your emergency fund (or at least a portion of your emergency fund). A great advantage of the Roth is that you can take out principle without penalty. This way, if an emergency never happens you will not have missed any contributions.

[pb4uski]

Quote:

Originally Posted by oneill225 I recommend fully finding your Roth, if possible, and using it as your emergency fund (or at least a portion of your emergency fund). A great advantage of the Roth is that you can take out principle without penalty. This way, if an emergency never happens you will not have missed any contributions.

+1. Fully fund the Roth and contributions can be a "Plan C" emergency fund... but if you have no emergency or can satisfy the emergency from other resources then you're ahead.

[Klubbie]

Do whatever helps you sleep at night.

The pandemic was a gut check for us. We spent the last few years paying down large chunks of student loan debt and saving for retirement and the trade off was a smaller emergency fund.

Before the pandemic hit we were targeting paying off my student loan on 5/1. That was going to be the trigger to allow us to build up our EF. One of the things I was considering doing before COVID was using Roth space for the EF in order to keep the space.

For whatever reason, when the pandemic hit I realized having that money in a Roth vs a taxable money market did not allow me to sleep as well at night as I wanted. It may not be rational, but it was where I was. We have built up our taxable cash and also took out a HELOC. Between cash and HELOC we have probably 2 to 2.5 years of living expenses now. We will now use Roth as our 3rd layer of EF.

My point is to find what helps you sleep at night. If you can sleep at night using Roth as your EF then you should do it. Using Roth now, and then having that space available to invest later when you reach the level of EF you want in taxable is a great place to be.

Personally I like the layered approach as it helps me view my money in buckets, almost like a wall around a castle. But that's what helps me sleep at night. It may not help you sleep at night.

[oneill225]

Quote:

Originally Posted by Klubbie Do whatever helps you sleep at night. The pandemic was a gut check for us. We spent the last few years paying down large chunks of student loan debt and saving for retirement and the trade off was a smaller emergency fund. Before the pandemic hit we were targeting paying off my student loan on 5/1. That was going to be the trigger to allow us to build up our EF. One of the things I was considering doing before COVID was using Roth space for the EF in order to keep the space. For whatever reason, when the pandemic hit I realized having that money in a Roth vs a taxable money market did not allow me to sleep as well at night as I wanted. It may not be rational, but it was where I was. We have built up our taxable cash and also took out a HELOC. Between cash and HELOC we have probably 2 to 2.5 years of living expenses now. We will now use Roth as our 3rd layer of EF. My point is to find what helps you sleep at night. If you can sleep at night using Roth as your EF then you should do it. Using Roth now, and then having that space available to invest later when you reach the level of EF you want in taxable is a great place to be. Personally I like the layered approach as it helps me view my money in buckets, almost like a wall around a castle. But that's what helps me sleep at night. It may not help you sleep at night.

There is no penalty for withdrawal of principle (your contributions) in a Roth IRA. If you do not make a contribution then that opportunity is gone forever while sitting in a taxable account. Maximize your options while losing nothing with the Roth. Sleep well.