Thread: Using your IRA as an emergency fund???

Yes, because all contributions to Roth IRAs can be withdrawn at any time both penality and tax free, as I have stated on these boards on the past. The reason i gave when i made that statement is the same; Roth contribution money has already been taxed by the IRS upfront, so the IRS only has any "say"/claim on earnings from that point forward. I gave a source that will help your belief on this, but if you just stop and think for a moment, even common sense will reveal to you that this makes sense/ and is true. You already paid them! The IRS cant double dip on your contributions, via an additional tax or an unjustified penality!

Now granted, i would only recommend this if you weren't able to afford to fully fund your IRA's otherwise. If you can afford it, plus save on top of that, then by all means leave them alone and let them serve their primarily purpose; securing your future.

Did someone say "slipper"? Oh... "using an IRA as an emergency fund is a slipper slope".

In my humble opinion, I believe that a person should allocate their savings to include an emergency fund that is separate from their TSP and IRA. An emergency fund should consist of a minimum of 2 - 3 months of your salary. An IRA is a long-term investment for your retirement and not a short-term investment to be used when your car needs repaired or a major appliance needs replaced, etc.

That's my opinion in a "slipper".

I see that as mostly semantics, "slipper", depending on the situation. What do I mean? Lets say i can only afford to put in $1500/year for retirement into Roth, but i'm also interested in having an emergency savings (which is a good idea). To accomplish both, i might just go ahead and put the full 3K into the Roth, with $1500 of that arbitrarily "earmarked" as emergency savings. Why would I do that? Because i might not need the other $1500, and if i dont, then i'll have the luxury of added tax-free earnings on that additional $1500 for as long as i keep it in there. Furthermore, i wouldnt be able to put that $1500 into a Roth next year if i waited, unless i used up part of next year's 3K max (or whatever the max will be for next year, 4K?)

But as i said above, in the ideal situation, if you can afford to do both, by all means max your IRAs, and have a separate emergency fund.

MarketTimer wrote:

Does anyone thing using your IRA as your emergency fund is a wise, solid, long term investment idea???

http://www.tsptalk.com/mb/view_topic...p;jump_to=4756

Any feedback is appreciate. I do not want to see a fellow board member get buried by the advice of another board member.

Thank you!

MT

As you all will see, MT isincorrect in his argument that original contributions to a ROTH are subject to the 10% penalty and taxes if one withdraws those at anytime before age 59 1/2.This simply is not true, for it is the EARNINGS that are subject to the penalty & taxes and NOT the original contributions. As long as you do not touch your earnings before age 59 1/2, you have nothing to worry about!

Go ahead, follow the link and find out for yourself.

I stillluv ya, MT!:^

Peace

A lot of this comes down to whether you like paying taxes or not. Call me odd, but I don't like paying them, and if i can get "free" tax-exempt growth on monies not even intended for retirement, i'm going to do it.

Think of the IRS as a bag of cow utters; start squeezing those puppies till the milk runs dry.

Cinderella wrote:

Did someone say "slipper"? Oh... "using an IRA as an emergency fund is a slipper slope".

In my humble opinion, I believe that a person should allocate their savings to include an emergency fund that is separate from their TSP and IRA. An emergency fund should consist of a minimum of 2 - 3 months of your salary. An IRA is a long-term investment for your retirement and not a short-term investment to be used when your car needs repaired or a major appliance needs replaced, etc.

That's my opinion in a "slipper".

Cinderella............"slipper".............now I get it!! LOL Thank God it's Friday. :*

TGIF...... Amen

MarketTimer wrote:

Does anyone thing using your IRA as your emergency fund is a wise, solid, long term investment idea???

Heck NO! When I retire, I will transfer my TSP to Vanguard for mutual funds which will make up a traditional IRA. This will have tax deferred monies, which would be ill used for an emergency fund. Instead/also I plan to have a seperate fund with Fidelity with mutual funds and my money market account that I can vary to my advantage with an ear marked $20K, say in a bond fund, specifically for an emergency.

Even with medical insurance, those deductables, can be like a rabbit in a cabbage patch! A hospital is one big rabbit cage. And doctors have a lot of rabbits they got to support, in them high$ houses, and high$ cars (plural). A friend of mine got a 2nd opinion, saying that surgery was not needed. The first doctors opinion was biased on having to pay bills.

Please folks, it was a bad/loaded question.

I think we can all agree the prudent person needs both, its just that if you cant afford to max your IRAs for retirement, then one is being aweful prudent to use a Roth to accomplish emergency savings as well while getting tax-exempt growth at the same time.

I'll admit this takes a higher order of thinking to do that, and if that makes things too complicated for someone, then by all means keep it separate, and, of course, be surenot toforget to pay uncle sam every april for his share of your "emergency savings".

So, if I'm understanding correctly, I good goal would be to save 15% of your pay for retirement. Put 10% in your TSP and put the other 5% in a Roth IRA? If you make $60000, then that would be the annual limit of your Roth IRA right now. Is this correct and does this sound like a good plan?

Gotta set goals................:^

So, if I'm understanding correctly, I good goal would be to save 15% of your pay for retirement. Put 10% in your TSP and put the other 5% in a Roth IRA? If you make $60000, then that would be the annual limit of your Roth IRA right now. Is this correct and does this sound like a good plan?

Gotta set goals................

If MT will allow me to drift off-topic here, i can give my 2 cents:

For a federal employee, i recommend saving 10% (not counting the match), but am open to as high as 15% (of gross household earnings). Choosing TSP vs Roth is a harder decision. I personally prefer maxing TSP first because of the low expense ratios of the funds, because i like the tax advantages now, and because you can get to all the money when you retire, which can be sooner than the 59 1/2 of Roth (for earnings and contributions) if you started work before 29 1/2.

The annual limit for your TSP is 14% of what you make (up to a maximum 13,000), Roths are currently 3K this year, and i believe go up to 3500 for next year. If you're married, your spouse can also have up to 3K this year. So you could save as much as 8400 for TSP, and 3000 for your Roth and 3000 for your spouse, if you're married.