Author Topic: Short term Savings  (Read 1300 times)

Zikzin

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Short term Savings
« on: November 30, 2016, 02:05:09 PM »
We're currently saving for a downpayment to buy a house sometime next year, currently we're just putting it in our savings account. Just wondering if its a good idea to use some of it to max a Roth IRA for this year? Are there tax benefits to it?  We're 143K married filing jointly, any tax breaks will be great.

Do you also recommend putting the rest on Betterment at 10stocks/90bonds to have some short term gains? will I be taxed if I pull it out to use it next year?

Thanks in advance!



cincystache

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Re: Short term Savings
« Reply #1 on: November 30, 2016, 02:59:31 PM »
Are you okay with delaying the home purchase? If so, then yes, max out the Roth accounts. There are no tax benefits "today" but those funds, including any growth, will be exempt from all future income taxes.

If you plan to use the money in the next year, I would probably stick it in a 1.0% savings account and call it a day. The 90/10 route is probably more trouble than it's worth. If this were 3-5 years away then maybe...

Yes, your account growth (if you have any) will be taxed at ordinary income levels if you cash out the betterment account before hodling it for 1 year. 

Net: Max out the Roth for both you and your wife, keep the rest in an online savings account at 1.0% interest until you have enough for your downpayment.

Enjoy the househunting process!

Zikzin

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Re: Short term Savings
« Reply #2 on: November 30, 2016, 03:29:16 PM »
I know it's super short term, I think it's better to just keep it liquid for now.

Thanks!

ender

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Re: Short term Savings
« Reply #3 on: November 30, 2016, 03:57:08 PM »
You can put it in your Roth IRA and not invest it, using that as a backup emergency fund. You can withdraw that money whenever, though it may take a few days.


If you end up buying a house purchase, great, pull out the $11k. If not, just pay yourself it back and build your savings.

therethere

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Re: Short term Savings
« Reply #4 on: November 30, 2016, 04:30:35 PM »
I agree with ender. If you aren't maxing a Roth IRA this year, I would throw 11k  in that. If you really plan to use it in a few months, then put it all in the money market fund within the IRA and don't invest it in a fund.

Then at least you are "using" your 11k of tax advantaged space in 2016. If you happen to not need all the money you saved for your downpayment then you'll have the remainder in your Roth IRA growing tax free. If you need it, no big deal, you can pull out your contributions to a Roth IRA at any time.

We have no immediate plans to buy a house, but I want to be able to buy if we change our mind. I consider our Roth IRA contributions as available for our downpayment. In my reasoning, if I was saving directly for a house downpayment we wouldn't have been able to contribute to our Roth IRA's (or at least not max them out). Therefore, the contributions are not "retirement savings" its "opportunity savings". The gains are just a nice retirement savings bonus.