Should You Put Your Emergency Fund Into Your Roth IRA?
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I think the preparation aspect is wholly wrong in this case, and maybe it's just because I'm looking at this from a wholly different perspective
I'm thinking he's very very wrong! Curious, I must learn more
You can put money in a Roth and not ‘invest’ it.
Yeah I'd do it. Don't miss out on maxing out that Roth. They still have 8k and should rebuild quickly. People shouldn't be in this situation, budget monthly for your Roth IRA. Its a slippery situation but I would use the money to fund the Roth.
March 2020 was the perfect example of why your Roth IRA is not where to keep your emergency fund. My Roth investments dropped 30% March 2020 and I was furloughed for one year. There was no way I was touching that investment. Retirement money is just that. Let compound interest work for you. Thank God I had my 6 month emergency fund liquid.
Just put it in the money market then, don't miss the annual Roth contribution…
I think they should have taken a position. Yes or no. No reason to be try and please everybod. Yes or no is the answer. I say no.
Why only 3-6 months of expenses. Individuals were out of work during the pandemic shutdown and 2008 financial crisis much longer. I have a much larger reserve. It never hurts.
there's an easy solution to this. Yes contribute the money from the emergency fund to the Roth IRA, so that you don't miss the contribute. BUT!!!! keep that money in the money market account until you replenish the emergency fund. Only after you replenish the emergency fund do you actually invest the money you just put in the Roth IRA. Best of both worlds 🙂
NEVER TOUCH YOUR ROTH TIL UR 60 END OF CONVERSATION
The sequence of returns argument is dead after a few good years of market returns. Put it in a taxable investment account though, so it grows along with your income. You also need to keep your retirement accounts separate in order to protect them from lawsuits and bankruptcies.
3 months in cash. Above 3 months can be in index or mutual funds
The other nuance is that, when you invest in the Roth IRA, you don't need to put that 6k into the same index fund as all the other money in there. At an extreme example, you could just leave it in cash, or put it into the same 0.4% CD that you had it in outside your Roth. That would allow you to have the flexibility of getting the money in the Roth, while still having your emergency fund available.
But yeah – this is only if it's a binary decision, and seems that it would be relevant only for the first few years of investing. (ie, you just start out, and for the first 2 years or so put your emergency fund into your Roth IRA; once you've got enough in there to cover expenses, shift over to a more aggressive strategy inside the Roth.) But If you have the ability to keep your emergency reserves AND fund your Roth, you should probably do that instead.
I also calculated the years I missed 🙂
Thanks for answering my comment! Great information! I will be maxing out me and my wife's 2020 ROTH IRA's. Yal are great!
Each year, I max out my 401k, Roth IRA and HSA so my rainy day fund is just that. I have a certain $$$ amount that I keep in the bank that gives me peace (everyone feels differently on what rainy day amount of $$$ gives them peace). Once I go over that amount that gives me peace, I invest it. 20 years ago, I would have put that $$$ in a CD and it would yield a safe/shorterm investment. Now CD’s and anything like that are worthless, so investing in stocks is the only option. That’s why the stock market continues to rise and isn’t literally tied to the economy like it used to.
I keep most emergency fund in a brokerage account with dividend stocks. The dividends can be used as an emergency fund. I don't like leaving cash in savings accounts
can we just take a moment and thank the Money Guy show for always posting content? So grateful for them.
I dont think you actually presented any argument against it. “Your investments can go down” – so what? You are losing 2% per year on your cash with inflation alone and you can lose more if inflation hits harder. If you have 10-20k emergency fund and you decide to invest you are only really risking on the first couple of years, after that it grown so much that you wont loose principle even in a correction.
I'm automatically depositing weekly into my Roth IRA. It helps me vitalize it as an important recurring expense, keeps me on track.
It could take a week or two to withdrawal from an investment account. So defiantly a good amount of that fund needs to be liquid.
Max it out! Use a bond or balanced fund for 1-2 years of contributions if you might need some of that money short term.
It’s disturbing that Bo looks down at the computer screen when Brian is talking. Full attention, interaction, and eye contact, please.
No
I don't keep 3-6 months. I have 10k in cash available
Good timing, been struggling with the thought for awhile now.