I may be wrong, but I thought you would be penalized if you take an
unqualified withdrawl before the age of 59. Something to look into. I
recommend using a Money Market Fund for the first portion of your
emergency fund (3-6k) and using something like a Managed Municipal Fund
for your 4-12 month emergency fund Money. This way you can acheive a
little better rate of return on the pool of money you are working so
hard to create. I personally use the Smith Barney Money Fund & the
Managed Municipal for my emergency fund. I have "Check Writing"
privilegdes with the Money Fund. Good Luck!

Espey wrote:
- quote -

Espey-
Definitely - a Roth is intended for retirement savings, but there are
plenty of other things to save for. The 401k & Roth have tax advantages
but you get the full benefit of those only if you leave the money there
until retirement. And course everyone will need money before retirement,
so you save separately for those things.

One basic game plan: pool up a bunch of money in completely liquid
savings - like that ING alternative, or some short-term CDs, or a mix -
perhaps $5k-$10k. In this day and age that's a reasonable minimum for
most people - considering the price of a car, medical bills, repairs,
vacations, etc. Then start regular conributions to a well-diversified
Vanguard Fund, maybe a fund-of-funds like the LifeStrategy series - this
avoids the issue of meeting multiple fund minimums. You can pick one
that has the right level of risk for you. When that gets big enough, you
have the option of splitting the money into the underlying funds. When
it comes time to buy a car or pay for remodeling or whatever, you sell
some of the funds and tap into some of the cash savings. Along the way,
because of the $10k, you'll never pay a dime in credit card interest, or
worry about losing your job, etc.

-Tad

I believe, if you withdrawal from your ROTH, you can put the money back
within 60 days and it not considered a new contribution or a
distribution. Otherwise it is considered a distribution and any new
money coming in is considered a new contribution that goes towards your
annual contibution.

"Andrew" <andrew[at]jkl.com> writes:

- quote -

No, you can't.

--
Rich Carreiro rlcarr[at]animato.arlington.ma.us

zxcvbob wrote:
- quote -

Yes, I'd like to know this one too - maybe someone can answer the question.
If one does indeed withdraw contributions (as allowed as has been noted),
can one replace them without penalties (or without reducing the current
year's allowable contribution limit) at a later time? If so, what are the
ground rules and are there time limits involved?

--
----------------------------- Regards -

- Andrew

Espey wrote:
- quote -

I think it's fine if you are disciplined not to touch it except for a
real emergency (like hospital bills or loss of job, not for a car or
appliance).

- quote -

You can withdraw contributions any time, even before 5 years, without
any penalties or taxes.

- quote -

I would definitely max out Roth and 401K up to the employer match. If
you want to reduce some 401K to build up some cash, that's OK, as long
as you're maxing out the employer match.

Espey wrote:

- quote -


The problem I see with tapping a Roth is the relatively low annual
contribution limits. If you withdraw money early, is there any way to
put the money back later? I don't think so, but I don't know.

For some reason my Roth investments are doing *much* better than my
regular IRA or my nonqualified investments. (perhaps I'm letting tax
consequences cloud my judgement in the nonqualified account) I wish I
could just dump everything in the Roth, but I'm limitted to $4000 per
year -- I think that's what it's up to this year.

Bob

My suggestion is to open multiple bank accounts and not reduce 401k or
Roth IRA contributions.

account 1 is where cash expenses come from. this is the account with
an atm card.
account 2 is where mortage comes out of. Add 1% of mortage payment to
amount deposited here (for a $1000 morgtage, deposit $1010 each month).
This account should not have an ATM card and should have a portion of
you paycheck directed here each month.
account 3 is for utilities. Add 5% of utility budget to account each
month.

accounts 2 and 3 should grow. Account 3 should be budgeted for worst
case months and then the extra 5% is your utility cushion. The 1% over
deposit to morgage account may also need a kicker- like an income tax
refund, to be at level where mortgage payment is in account 1-2 months
ahead of time.

Thanks for all the good information! I would only use the "emergency
fund" if I loose my job and it's the only way I can pay my mortgage
payment. I can't think of any other reason to dip into it.

I also need to start saving for other expenses in the future (ie,
wedding, bathroom/kitchen remodeling, etc) so I think I will still
establish another taxable account (either ING Direct Savings account or
a Vanguard Fund). I don't think it makes since to withdrawal
contributions from the Roth for planned expenses like these. Thoughts?

You're 24 and have been contributing to both a 401K and a Roth since you
were 19? Congratulations! I wouldn't say yes to your question to most 24
year olds, however, you seem to have the discipline to do this. I think
that using a ROTH as your emergency fund is a good idea, only if you are
strict with yourself and have a very firm definition of what an emergency
is. If you think you can do that then by all means. You will at least earn
better returns then a saving account and it is just a little more difficult
to access then via an ATM machine so less likely to be hit up for impulse
things. Keep up the good work.

--
Kathy Morgan EA
H & R Block Master Tax Advisor
Proud Mom of Sgt RT Morgan
1/156 AR BN C Company
Louisiana Army National Guard
Baghdad, Iraq

- quote -

"Espey" <phespey[at]yahoo.com> wrote
- quote -

One is allowed to withdraw Roth IRA contributions at any time. There is no 5
year limit.

There are no taxes on such withdrawals. The reason is that you already paid
taxes on them when you first contributed.

I think it's very important to plan not to touch these contributions, since
the earnings on them grow tax-free through your ultimate retirement.

I have a separate emergency account, good for about one year of living
expenses, but in fact I do see my Roth IRA contributions as a further
emergency account.

Note also that one may take a withdrawal of X dollars at any time from one's
IRA and IIRC return it within 60 days. There are no taxes or IRS penalty for
doing so. It's kind of a short-term loan.

Good for you for contributing to both a Roth IRA and 401(k).

Would it be unwise to use my Roth IRA as my "emergency fund"? The
account has been open for over 5 years and I've always contributed as
much as I can afford, rather than contributing to a savings account ..
I know you can withdrawal contributions if they've been in for over 5
years but are there any taxes on it? I'm 24 yrs old and have been
contributing to both a 401k and my Roth for over 5 years but have no
other savings. Perhaps I should cut back the Roth and 401K
contributions and send some to a savings account or conservative mutual
fund (ie. Vanguard STAR Fund or Total Stock Market Index). Please
advise.

Thanks!