Using Roths for emergencies

Source: Humberto Cruz, a columnist for Tribune Media Services July 8 2007

My comment:

Once you withdraw the money from your Roth IRA, you could not put the money back at later time.

This article argues that Roth IRAs could be counted as part of your emergency fund.

The Roth IRA is a type of individual retirement account that, unlike a traditional IRA, does not offer a tax deduction on contributions. But all withdrawals can be tax-free once you are 59 1/2 and have had a Roth IRA opened at least five years.

Another advantage is that, because you've already paid taxes on the money you contributed, you can always withdraw your contributions, at any time and for any reason, without taxes or penalties.

It is possible to use a Roth IRA as an emergency fund.

If you need the money, it is there for you. If you don't need it, you can leave it alone to grow tax-free for retirement.

However, Roth IRAs are ideal vehicles for long-term, growth-oriented investments such as stocks and stock mutual funds. Emergency funds are best kept in stable, short-term investments that can be converted to cash quickly without loss of principal.

Therefore, before using part of your Roth IRA as an emergency fund, you need to consider whether it fits within your overall asset allocation.