The Money Mustache Community

Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: Gin1984 on August 30, 2014, 02:31:34 PM

Title: Put moving fund in my Roth?
Post by: Gin1984 on August 30, 2014, 02:31:34 PM
My husband just graduated from grad school and got a post-doc a hour and half away, but that came with a $16K raise.  All of it will be going into his 403b.  I should graduate in about three years.  At that point we will be moving god knows where.  When we moved for my husband's grad school we spent about $3000 in a cross country move.  I also want to have enough for first, last and security which I can't imagine being more than $1000/each (no NYC, Boston or SF in our future).  So we have slowly been saving towards a goal of $6000 (we have $3000).  Recently, because our income is so low we have been saving in a Roth ($750/month) but that will go to the cost of the commute.   So we now have space in our Roths and no money to put there.  I was thinking of putting anything over the $3000 into our Roths in a CD, since we won't need it and pulling it out in three years.  I won't need the money till then and I could use the small amount of interest in the Roths.  What do people think?
Title: Re: Put moving fund in my Roth?
Post by: Sdsailing on August 30, 2014, 03:00:43 PM

I would just leave it in taxable. It is a very small amount of money and you must be in a low tax bracket.
Title: Re: Put moving fund in my Roth?
Post by: gildedbutterfly on August 30, 2014, 03:09:48 PM
I sort of keep my emergency fund in a money market account in my Roth. (I say sort of because, as I'm self-employed, I also live on money I earned last year, which is its own emergency fund.) Anyway, ~$10k of my Roth is in a mm account as an emergency fund, just in case.

I think it's a good idea for you to do this. If you move, you can withdraw what you put in. But if you don't end up moving (or if you end up only needing a portion of that money), you can leave it alone. Since you won't get the chance to contribute this year's money in future years, and because that money is probably taxed at a very low rate, it makes sense to go ahead and do it that way.

I would just leave it in taxable. It is a very small amount of money and you must be in a low tax bracket.

That's why it makes sense for them to put it in a Roth. If they are taxed at a low rate, and don't end up using the money, by the time they're retired, it will morph into a nice little tax-free nest egg. On the other hand, if they put it in a taxable account and don't end up using the money, they've lost out forever on the opportunity to contribute this year's money.
Title: Re: Put moving fund in my Roth?
Post by: Gin1984 on August 30, 2014, 03:40:38 PM
I sort of keep my emergency fund in a money market account in my Roth. (I say sort of because, as I'm self-employed, I also live on money I earned last year, which is its own emergency fund.) Anyway, ~$10k of my Roth is in a mm account as an emergency fund, just in case.

I think it's a good idea for you to do this. If you move, you can withdraw what you put in. But if you don't end up moving (or if you end up only needing a portion of that money), you can leave it alone. Since you won't get the chance to contribute this year's money in future years, and because that money is probably taxed at a very low rate, it makes sense to go ahead and do it that way.

I would just leave it in taxable. It is a very small amount of money and you must be in a low tax bracket.

That's why it makes sense for them to put it in a Roth. If they are taxed at a low rate, and don't end up using the money, by the time they're retired, it will morph into a nice little tax-free nest egg. On the other hand, if they put it in a taxable account and don't end up using the money, they've lost out forever on the opportunity to contribute this year's money.
That was my thought process.