| Many of you may not know that using a Roth IRA as | | | | Emergency Fund |
| an emergency fund is perfectly feasible. Often | | | | Though the advantages are nice, they may not out |
| confused by the traditional IRA, people assume that | | | | weigh the potential disadvantages of handling your |
| once money is deposited into this retirement account, | | | | emergency fund like this. The main disadvantage is |
| that money cannot be taken out or used for any other | | | | simple to understand if you consider when you would |
| purpose. | | | | be needing to access your emergency fund. Often, |
| Here's the good news: a Roth IRA allows the investor | | | | when things are going poorly economically, people are |
| to withdraw funds up to the amount originally | | | | losing jobs and emergency funds are looked to as |
| deposited. So, in other words, if my initial investment | | | | immediate relief if the income stops suddenly. But in |
| were $5,000 and over time that account grew to | | | | poor economic times, remember that typically most |
| $7,500, I would only be allowed in the case of an | | | | investments will drop substantially. As we've seen in |
| emergency to pull out my original deposit of $5,000. | | | | the recession of 2007 until 2009, the S&P and |
| Advantages To Using Your Roth IRA As Your | | | | other market benchmarks have dropped significantly. If |
| Emergency Fund | | | | you were to have such investments within a Roth IRA, |
| Using your Roth IRA as your emergency fund allows | | | | that same $5,000 you may have initially invested could |
| you to consolidate your savings and have virtually all of | | | | now be as low as $2,500. What happens when you |
| it in one place, unless you have some short term | | | | lose your job and you need all of that $5,000? |
| saving or a 401k elsewhere. There's much to be said | | | | If you have to pull your money out at that point, you |
| for having your savings well organized and in fewer | | | | have locked-in your losses. Losing money via an |
| places. It tends to be easier to keep track of and more | | | | investment is only a loss when you "cash-out." Up until |
| simple to manage. Plus, if the market is doing well, you | | | | that point, you only have a "paper-loss." When times |
| can have your emergency fund picking up great | | | | are difficult economically, there's a good chance that |
| interest (on average 12%) while it's sitting inside your | | | | you'll need money from your Roth when it's performing |
| Roth. Though you'll never actually be able to tap into | | | | at its worst. |
| those earnings if things get bad, you'll be glad someday | | | | It's clear there are several pros and cons to using your |
| in retirement, as your earnings continue to compound | | | | Roth IRA as your emergency fund; however, the |
| and grow over the years. | | | | disadvantages seem to outweigh the advantages. Be |
| Disadvantages To Using Your Roth IRA As Your | | | | careful. |