Author Topic: Where to store rest of Emergency Fund  (Read 4779 times)

FastStache

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Where to store rest of Emergency Fund
« on: August 19, 2013, 03:14:39 PM »
I'm trying to get some return on some of my emergency fund.

Current EF
12 K @ 0.8% - covers about 3 plus months of expenses.

Not sure I can get a line of credit on my house. But it's a possibility.
Credit cards stay empty with about 12k available.

If I kick the bucket, there will be life insurance for my family
I I get sick, my job provides 6 months of disability at full pay.
If I get fired, I should get my vacation and some severance which should amount to 10k.

I'm at the point where I don't feel I need to have my emergency fund just sitting in a savings account getting very little.

My next move, would be to max out a Roth IRA for the year. Or would it be wise to get at least 6 months in a savings account before I move to populating a Roth IRA? From Vanguard?

lentilman

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Re: Where to store rest of Emergency Fund
« Reply #1 on: August 19, 2013, 04:40:01 PM »
You can use the Roth as your emergency fund if you want to have your cake and eat it too.

http://money.usnews.com/money/blogs/the-smarter-mutual-fund-investor/2012/08/06/can-a-roth-ira-be-your-emergency-fund

Another Reader

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Re: Where to store rest of Emergency Fund
« Reply #2 on: August 19, 2013, 05:04:20 PM »
I'm sorry, but in my opinion a Roth should only be tapped in a dire emergency.  Once the money is out of the Roth, it can't go back.  You lose all that tax free growth.  For a younger person that's a huge loss over time.

If you are healthy and employable, I think the three months of expenses is a reasonable start.  Fund the Roth's for you and your spouse and then think about how much more you need in savings to sleep well at night.  That's what I would do in your shoes.

If you want to invest in index funds, Fidelity and Vanguard are both good choices for the Roth IRA's.  Fidelity has bricks and mortar offices if you like to visit your money and the folks watching over it.  They also have a cash management account which might be helpful as you grow your asset base.

BTW, life insurance can take some time to pay out.  Those three months of expenses could come in handy in the worst case scenario....

brewer12345

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Re: Where to store rest of Emergency Fund
« Reply #3 on: August 19, 2013, 07:26:25 PM »
How about an I bond?  you can put up to 10k a year in, it keeps up with inflation, taxes are deferred on the income until you redeem them, and there are tax games that can be played with college funding.  The gotchas are that they are not liquid for 1 year after you buy them and you give up a bit of interest if you cash them in before 5 years.

jpdcpajd

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Re: Where to store rest of Emergency Fund
« Reply #4 on: August 19, 2013, 10:34:27 PM »
how about some in non-perishable food? It protects against inflation and provides peace of mind in any market scenario.

Dr. A

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Re: Where to store rest of Emergency Fund
« Reply #5 on: August 20, 2013, 08:51:33 AM »
I stuck my emergency fund in a 5-year CD from Ally Bank, with the understanding that I will roll it over as rates rise. Ally's early withdrawal penalty is only 60 days, so even if I pull it out after 5 months I've done better than my savings account would have.

Good calculator for the effective yield of early withdrawals here, BTW: http://cdcalc.herokuapp.com/

It's not a whole lot better than your 0.8%, but it's something.

oneporter

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Re: Where to store rest of Emergency Fund
« Reply #6 on: August 20, 2013, 09:04:20 AM »
Once the money is out of the Roth, it can't go back. 

It can go back within 60 days as long as you haven't taken a similar loan in the past 365 days.

http://www.schwab.com/public/schwab/resource_center/expert_insight/ask_carrie/credit_debt/can_you_borrow_from_your_ira.html

FastStache

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Re: Where to store rest of Emergency Fund
« Reply #7 on: August 20, 2013, 10:59:32 AM »
I stuck my emergency fund in a 5-year CD from Ally Bank, with the understanding that I will roll it over as rates rise. Ally's early withdrawal penalty is only 60 days, so even if I pull it out after 5 months I've done better than my savings account would have.

Good calculator for the effective yield of early withdrawals here, BTW: http://cdcalc.herokuapp.com/

It's not a whole lot better than your 0.8%, but it's something.

Are there any fees associated with rolling over?

Dr. A

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Re: Where to store rest of Emergency Fund
« Reply #8 on: August 20, 2013, 11:15:19 AM »
I say "rolling over", but really I just mean withdrawing from the CD early (for which I would forfeit 60 days interest) then opening a new CD at the interest rate offered at the time. No other fees involved.

mustacheme

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Re: Where to store rest of Emergency Fund
« Reply #9 on: August 27, 2013, 06:48:44 PM »
Once the money is out of the Roth, it can't go back. 

It can go back within 60 days as long as you haven't taken a similar loan in the past 365 days.

http://www.schwab.com/public/schwab/resource_center/expert_insight/ask_carrie/credit_debt/can_you_borrow_from_your_ira.html

Thanks for sharing this - I am starting to consider putting some of my emergency plan money in my ROTH, and didn't know about this rule.
I agree with the person who said you shouldn't take money out of a ROTH in general, but if it's money you wouldn't have put in your ROTH in the first place - i.e. money you'd have kept in an emergency fund instead then it seems like a reasonable backup plan for a true emergency.