Question: My husband and I got married recently and we're having a bit of a debate about what constitutes an emergency fund. I believe it is an account (money market, CD, savings) with 4-6 months of expenses stashed away. My husband feels that it doesn't have to be a particular account; in fact he would say that I could count my 401K and IRAs as emergency funds. I completely disagree as my retirement funds are for just that, retirement. In an extreme situation, I could tap into those, but it would have to be from dire need. We'd appreciate your wise counsel on the subject & enjoy listening to your show on Yellowstone Public Radio. Thank you, Rachelle, Bozeman, MT

Answer: I don't want to get between you and your husband, but I'm going to have to take your perspective on "emergency" savings. It's your safe and secure money that you have quick and easy access to without paying a penalty. Emergency savings includes savings accounts, money market mutual funds, short-term certificates of deposit, Treasury bills and the like. Of course, there are differences between these products. You can get immediate access to a savings account attached to your checking account. If you own a 3-month T-Bill that you purchased through treasurydirect.gov you'll have to wait until matures.

The problem with tapping into 401(k)s or a traditional IRA is that you could end up paying a 10% penalty or ordinary income rates on the withdrawal.

However, your husband is right to consider the retirement plans as part of your overall savings. There are ways to get at it, too. You might be able to withdraw some of the 401(k) money as a loan and pay yourself back over time (assuming your employer lets you borrow against your 401(k).) You can take money out of the IRA and, if you return it all within 60 days, there are no penalty or tax implications. You can only do it once a year. Still, both these strategies have significant financial drawbacks, which is why I don't recommend them.

There is an exception: The Roth-IRA. The contributions into a Roth are with after-tax dollars. In a pinch you can withdraw your Roth contributions without paying a penalty or taxes to Uncle Sam. Just leave the investment returns alone, since there is a levy on earning if you do take them out. A Roth is both a retirement savings plan and an emergency pot of money.