Using Roth IRA as Emergency Fund?

[Julie Rains]

I think using the Roth as a safety net is a great idea: I wrote about it awhile back though I got the idea from a Wall Street Journal writer. And, as Xin mentioned, you don't have to fund it with equities.

[starshard0]

I don't know, personally I'd rather keep my accounts seperate, just to ensure there's some distinction between what I should use them for.

[Julie Rains]

I should clarify -- I don't necessarily think everyone should open a Roth for the purpose of having an emergency fund. But I do think it is a reasonable method of having funds available, especially compared to alternatives such as taking on more debt or withdrawing money from a 401(k) and then getting hit with taxes there (taxes on the contribution plus a penalty).

[sr82]

I am sorry for the slightly unrelated question.

I am 26 (turn 27 in August) and have not yet started a Roth IRA. I currently make 95,000. In the next couple of years, I will probably hit the 101,000 salary mark where I will no longer be able to contribute $5K to a Roth IRA. And in a few years after that, I will likely exceed the 116,000 salary mark after which I won't be able to contribute to a Roth IRA at all.

The question is, am I too late to the party? Should I invest in a Roth IRA at all given I only have a few years to contribute to it? Let's say I have 5 more years where I can contribute to a Roth IRA, and I contribute $20K to it - is this substantial or am I better off looking for an investment option with more longevity?

Are there any other post-tax options I can use if I am late on the Roth IRA train?

Many thanks.

[Philip Brewer]

Originally Posted by sr82

The question is, am I too late to the party? Should I invest in a Roth IRA at all given I only have a few years to contribute to it? Let's say I have 5 more years where I can contribute to a Roth IRA, and I contribute $20K to it - is this substantial or am I better off looking for an investment option with more longevity?

I can think of a few reasons why it might be worth going ahead with the Roth:

1. Rules on this sort of thing change all the time. The limits might well be increased before your income goes above them.
2. Even if you can only put $20k in, that could grow into serious money if whatever you invest in earns a good return over a long period of time--it could quite plausibly reach half a million by the time you were old. Consider just putting it into something reasonably aggressive and seeing what you've got after 30 or 40 years.
3. Retirement accounts are somewhat protected in cases of lawsuits, bankruptcy, etc. If you suffer a financial catastrophe, it might be really nice to have $20,000 to start over with. (The rules on that sort of protection are all different; although I don't know if one, it's possible that there's some scenario where your 401(k) could be taken but your Roth protected.)

[MNfrugal]

If you decide to start a Roth IRA, and have $5k to contribute now, I think you can a 2008 contribution through April 15 (?). Then you can work on your 2009 contribution.

[amyschiff]

Originally Posted by MNfrugal

If you decide to start a Roth IRA, and have $5k to contribute now, I think you can a 2008 contribution through April 15 (?). Then you can work on your 2009 contribution.

Yeah. You can do a contribution for last year as long as it is in by the tax deadline, so you'd actually be able to put in $10k if you start one now.

[sr82]

Thanks for the info!

Do you guys have any recommendations as far as who to open a Roth IRA account with? Any suggestions as far as fees, customer service goes?

Thanks!

[amyschiff]

I just started mine with TD Ameritrade and they seem pretty good so far--lots of research and planning tools. It was free to set up, and you get like 500 free trades. Trades are 9.99 after that.

You also get some sort of bonus if you refer someone...more free trades, I think.

[singleguymoney]

I keep saying I am going to open a Roth but I haven't gotten around to it. I have always been a little squeamish of the market and the past performance over the last few years hasn't helped things.