Roth, the emergency-emergency fund
Question: I was wondering if I should look at putting my emergency fund in a ROTH IRA. That way in case of emergency I can withdraw my cash contributions and let the returns grow tax free. Dhruv, Methuen, MA
Answer: One of the nice features of a Roth is that its both a retirement savings plan and an emergency-emergency fund. No, that isn’t a typo.
The money in a Roth should be treated as if you won’t tap it until retirement–and hopefully that’s the case. But in a pinch you can withdraw contributions tax-and penalty-free. (As you say, you leave the earnings in the Roth. You can’t withdraw earnings without paying tax and penalty.)
Still, I would treat the Roth as a back-stop to your existing emergency fund, which should be stashed in safe savings accounts at the bank, credit union, money market fund and the like. Hence, the Roth is your emergency-emergency fund.
As a nonprofit news organization, our future depends on listeners like you who believe in the power of public service journalism.
Your investment in Marketplace helps us remain paywall-free and ensures everyone has access to trustworthy, unbiased news and information, regardless of their ability to pay.
Donate today — in any amount — to become a Marketplace Investor. Now more than ever, your commitment makes a difference.