Author Topic: Cash / Emergency fund questions  (Read 1481 times)

des999

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Cash / Emergency fund questions
« on: September 27, 2016, 10:42:47 AM »
Hi all,
I've been thinking about going part time for a while and I've thought a lot about how best to handle emergency type expenses.  I'd love to have some feedback and/or thoughts on what others would do.  Here is my thinking.

I have always had a very stable job at mega corp, and honestly not really concerned about losing my job, so I've never kept much in the way of emergency funds, maybe 1-2 months at the most, and have chosen to keep all my money in investments with a chance of much higher returns than a money market. 

Now that I am leaning toward part time, my spending will be around 35k / year, and I would receive ACA subsidies as long as my income doesn't go over 40k.  To allow for extra income on years where I may have large surprise expenses I think it would  be best to have savings to cover those, rather than try to earn more income and possibly go over my ACA limits/cliffs.

It looks like I can continue to max out my Roth and use those contributions as spending without counting as income (currently I have about 15k in contributions, and I can only put in 5500 a year, so that means I'll have to put more money into another savings option. 

Again, I'd prefer not to have money in a money market or savings account, as the chances I'll need it are slim, so would I a brokerage account work, where I assume I can withdraw my contributions and they not count as income?

My plans are to let me other retirement accounts (mostly all pre-tax accounts) just continue to grow as I go part time, and still contribute some to keep my MAGI around 35k.  This all depends on what kind of part time salary I can negotiate.

Anyone got other ideas?

Thanks!

MoonLiteNite

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Re: Cash / Emergency fund questions
« Reply #1 on: September 28, 2016, 02:03:01 AM »
As long as you can get money, or money with credit in a timely manner for the worst thing that could happen to you. It should be fine.
If your house burns up, you may need a few grand to get a temp place to live and new clothes. Can get this on credit if your credit line is high.
If you lose your job (unlikely) you may need some money for food. Can get this from your investments. Should have enough cash on hand for a week's worth of food :P


And yes, ROTH IRA you can pull your contributions out without penalty from the government.

Mother Fussbudget

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Re: Cash / Emergency fund questions
« Reply #2 on: September 28, 2016, 10:11:39 AM »
I keep 2 months in cash in savings, and also keep several credit cards to build up airline miles & cash-back.  A couple of those cards have >$20K borrowing ability, so they effectively act as an 'emergency fund' that I always pay off before the next bill cycle.

A typical taxable brokerage account is after-tax money, so you're NOT taxed on the initial investment, you're only taxed on any capital gains - ROI after commissions for buying/selling.

Tax rates for investments sold in a taxable brokerage account work as follows: 
Short-term investments = sold after being held for <1yr;  Short-term capital gains rate = your income tax rate.
Long-term investments = sold after being held for >1yr;  Long-term capital gains rate = 15%

des999

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Re: Cash / Emergency fund questions
« Reply #3 on: September 28, 2016, 10:45:21 AM »
thanks for the info, I assume the money/contributions from either Roth or brokerage also have no income impact for ACA?