I recently read an interesting article on Using Your Roth IRA as an emergency fund. There are some pros and cons with stashing your emergency fund in a Roth IRA.
Use Roth IRA as your backup emergency fund
Pros
- Money grows tax free. This works especially well if you don’t have a major emergency.
- Less temptation to take money out. It would truly have to be an emergency if you have to withdraw your money and you would be less inclined to take money out for a questionable ‘emergency.’ (You know what these are.)
Cons
- Increased Hassle and paperwork. It may take a few days to get your money when it’s in a Roth IRA.
- You can only contribute $5,000 a year. You can’t use your Roth like a checking account, moving money in and out of your account. The idea is to put your money in and keep it there.
Overall
I am not opposed to doing this as long your emergency is not aggressively invested. I would also keep a portion of your emergency fund in a more accessible savings account where you can get you money in a couple of days.
