Should You Use Your Roth IRA During Emergency

Saturday, August 18, 2012

Should You Use Your Roth IRA During Emergency

When you are saving for potential disaster, it can be really important to consider your various options in the process, and keep a few different sources of revenue separate from what you use on a daily basis. Some of the qualifications that you must meet in order to use the funds in the Roth IRA include age limitations, intentions for the funds and the purpose of your funds once withdrawn, and time limitation. So, how do you decide whether or not to use your Roth as your emergency fund?

Well, this can be tricky, although it might not be recommended to rely on it, since there are quite a few stipulations that determine when you can withdraw money from your account and how much is tax deductable. If you consider using it during emergency, you might want to do your research on your Roth IRA first, and see that you meet the qualifications for withdrawal.

For example, the general rule with Roth funds is that you will need to keep your money in your account after your initial contribution for a certain amount of time. Usually, this time period is 5 years. That can be a long time to wait for the money, especially, if you are using those funds as backup. If you plan on using your Roth IRA in an emergency, then emergency must fall in the time period after the 5 years time limit. This is called the Five Year Rule, and is the part of a Roth IRA distribution that does not waver.

In addition, Roth IRA’s has an age limit for distribution for the most part. Many people put funds in to use for their retirement, which often happens in their late 50’s. Because of this, the Roth IRA is usually only accessible once the age of 59.5 is reached. In case you are in your 20’s or 30’s, or even your 40’s, and considering using your IRA fund as an emergency fund, you will likely want to consider another option for your backup plan. If you hit financial difficulties, Roth IRA won’t be available to you for years and years.  

There are some exceptions to this rule, however, including the stipulation that funds can be distributed from your Roth IRA (as long as the funds have been in for 5 years), if they also meet a number of other factors. One of those factors is your death, on which the Roth IRA would be dispersed to your benefactors. So, with that stipulation, it will be unlikely to use the Roth IRA during times of emergency. Another stipulation that has to be met in conjunction with the Five Year Rule is that you can withdraw up to 10,000 dollars from your Roth IRA if you qualify for the first-time-home buyer’s credit. If you are not planning on purchasing your first home soon, or if you already own a home, you might not be able to count on money from your Roth IRA.   

It might not be the best idea to use it as an emergency resource. If you are aware of the stipulations and time limitations on your fund, and know for sure that you will be able to access the account, then you can consider using it as your emergency fund. However, because the Roth IRA funds are difficult to access, and do have so many variables required before you are able to procure money from those accounts, many people will find it advisable to rely on other methods of revenue, or other savings funds to support them in case of an emergency.   


Karl Stockton has written a lot of guides on funding and insurance, including Renters Insurance.

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