Emergency fund in Roth?

[ATC Guy]

I have roughly two years left before I separate from the Air Force. I'm trying to plan this out as best as possible. With a recent raise, my wife and I are able to finally start socking away a decent amount of money each month.

I'd love to start getting money in a Roth as soon as possible to maximize the amount we have in this tax shelter for further down the line. On the other hand I know we need to save as much as possible over the next 24 months because I am essentially guaranteeing unemployment for at least a short period of time (plan for the worst hope for the best).

Since what we will save before separation won't accrue much interest in such a small period of time and you can always take out principle from a Roth without penalty, I'm leaning toward putting all savings (up to yearly max) in a Roth. If we need some of it due to extended unemployment, it's there. If not, bonus! We will already have a bunch of extra cash in a Roth.

Thoughts?

[ronocnikral]

What if you had invested all that money in something like energy solutions? OR we had another 2008. You take it on the chin with a reduction in principal AND you are unemployed.

Unless you want to leave it "safe" investments and have your spending power eroded.

What you propose assumes the value of your Roth will stay the same or grow. But, it doesn't always work out that way...

[LOL!]

Yes, a Roth IRA is a great place for an emergency fund for folks who cannot fund both a Roth and a separate emergency fund.

Just be sure to use an investment suitable for an emergency fund such as a short-term bond fund or CD or high rate savings.

You can google "emergency fund Roth" and read more.

[Animorph]

Quote:

Originally Posted by LOL! Yes, a Roth IRA is a great place for an emergency fund for folks who cannot fund both a Roth and a separate emergency fund. Just be sure to use an investment suitable for an emergency fund such as a short-term bond fund or CD or high rate savings. You can google "emergency fund Roth" and read more.

+1. Nothing says you have to be in equities or even bonds. Cash for a couple years is fine.

If you do find yourself under-employed for a while, low income years are a great time to contribute to a Roth since the tax impact is low. So keep contributing if you can. Once you are working again, the normal pre-tax 401k/TIRA may be a better place for your savings due to the tax breaks.

[martyb]

My Roth is my main emergency fund. I have VERY short-term money on hand in a savings account that would hold us until we could get the money out of the Roth if needed. Just the way we roll.....