Comments on: The Roth IRA as Emergency Fund

By: using a roth IRA as your emergency fund - Dogpile Web Search

using a roth IRA as your emergency fund - Dogpile Web Search — Wed, 29 Oct 2008 03:12:19 +0000

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By: Baba Ghanoush

Baba Ghanoush — Wed, 04 Jun 2008 14:49:27 +0000

@Mohammed
It is 5 years before you can take out any earnings from your Roth IRA without paying a penalty. You will pay taxes at that time. You can take out your contributions at any time, without penalty, and of course you have already paid taxes on those.

My take is that if you can afford to fully fund a Roth IRA and an emergency fund, it’s certainly better to have an emergency fund outside the IRA, to avoid the need to tap retirement funds. However, if you’re foregoing your tax-advantaged Roth contribution to fund an emergency fund in a taxable account, I think you’re making a mistake. If it’s either/or, choose the Roth, but invest in a money market fund or short-term bond fund, not in equities.

By: Mohammed

Mohammed — Sun, 30 Mar 2008 15:54:25 +0000

What’s the difference between Roth IRA withdrawals and distributions? I thought distributions are only allowed in the following scenarios:
(btw, your Roth IRA must also be atleast 5 years old before you can take any money out of it without getting hit with taxes/penalties?)

Any ‘qualified distributions’ you take from a Roth IRA will NOT be included in your taxable income, hence making you exempt from paying taxes. You won’t have to pay taxes on the original principal you contributed nor any taxes on capital gains & earnings you have accumulated. Pretty sweet you think for Roth IRAs, eh? In order for the distribution to be classified as ‘qualified’, it must be taken under 1 of the following circumstances:

- the Roth IRA investor must be 59 and 1/2 years or older at the time of the distribution
- the Roth IRA investor becomes disabled at the time of taking the distributions
- the Roth IRA investor dies and his/her beneficiary receives the assets contained in the plan
- the distributions taken from the Roth IRA will be used in the purchase or building of a new home for the Roth IRA holder or qualified family member. This is limited to $10,000 per person per lifetime. Qualified family members include:
–> the Roth IRA investor
–> the Roth IRA investor’s spouse
–> children of the Roth IRA investor
–> grandchildren of the Roth IRA investor
–> parent or ancestor of the Roth IRA investor

Source: www.definerothira.com

Note: Even if one of the above prerequisites is met, the Roth IRA must be atleast 5 years old before any distributions can be taken. This is a very important point to consider. For example if you set up your Roth IRA in March 22nd, 2003, you cannot take any distributions, even if they are qualified, until March 22nd, 2008. If you do, this distribution will not be qualified and you will have to pay the 10% early withdrawal penalty as well as income taxes.

By: High Yield Low Risk

High Yield Low Risk — Thu, 20 Mar 2008 03:20:00 +0000

1. The real reason one should invest in a Roth Ira is that you pay taxes when you are in a much smaller tax bracket and you withdraw money (tax free) when you have gathered high yielding investments and are receiving a high return on them.
2. The other benefit of a Roth is that it does not force the owner to start withdrawing money at the age of 70 and a half. (Roth is the only account that grants you this freedom).
3. And obviously, withdrawal of contributions are tax free.

At this time, investors must focus on how to maximize the returns on the investments when the REAL inflation is upwards of 5%(irrespective of what Ben Bernanke says). An 8% Nominal return is unlikely to produce a REAL return of more than 2%.

So the investors must must search for high yielding investments to invest their Roths into.

By: bad credit payday loan

bad credit payday loan — Thu, 01 Nov 2007 11:06:33 +0000

I have some money in liquidity form for emeregency use, But not much return on it as it is in simple saving account.

By: Advanced Personal Finance » Blog Archive » How to Deal With a 401(k) Plan That Sucks

Thu, 27 Sep 2007 12:41:41 +0000

[…] recommend contributing to a Roth IRA even if your plan offers a Roth 401(k). The reason is because you can always withdraw your contribution to a Roth IRA without penalty before retirement if disaster strikes and you need the […]

By: AskDong » One Topic: Emergency Fund

AskDong » One Topic: Emergency Fund — Sat, 22 Sep 2007 16:13:17 +0000

[…] with funding a longer term emergency horizon with both sales of assets, a home equity line, or as Advanced Personal Finances suggest the Roth IRA. Someone in their early 20s usually doesn’t have those options. Having an emergency fund is […]

By: Advanced Personal Finance » Blog Archive » Roth IRA Is Better Than Roth 401(k)

Thu, 26 Jul 2007 12:33:11 +0000

[…] Though I don’t recommend raiding your IRA for spending money, a Roth IRA can function as a back-up emergency fund. There are different rules for withdrawing money before retirement from a traditional IRA. 401k […]

By: Personal Planning | MyPersonalPlanning.com » Blog Archive » links for 2007-07-22

Sun, 22 Jul 2007 15:23:09 +0000

[…] Advanced Personal Finance » Blog Archive » The Roth IRA as Emergency Fund Welcome and thanks for visiting! If you’re new to Advanced Personal Finance (tags: funds investment money tax) […]

By: Using Your Roth IRA for Emergencies | Personal Finance Corner

Using Your Roth IRA for Emergencies | Personal Finance Corner — Mon, 09 Jul 2007 21:56:43 +0000

[…] in a Roth IRA, that’s unrelated to tax laws.)What this means is that you can actually use your Roth IRA as an emergency fund if you need to. As long as you stick to withdrawing your direct contributions, there are no […]