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Should You Use Your Roth IRA as an Emergency Fund?

Why in the world would you want to use your Roth IRA as an emergency fund? Isn’t the point of a retirement fund to not touch it until you RETIRE? I’ve shared how establishing an emergency fund should be one of your top financial priorities in 2015 if you don’t already have one.

Should you use your Roth IRA as an emergency fund?

A few friends of mine are nerdy about budgets like me so we talk finances fairly often. The topic of emergency funds came up and one of my friends shared that he doubles his Roth IRA as an emergency fund. I responded wide-eyed: “What made you decide to do that?” I was taught that touching your retirement funds before retirement is a no-no and I hadn’t heard of people using this as an option. After further explanation here’s how my friend broke down how to use your Roth IRA as an emergency fund:

use your Roth IRA as an emergency fundHow it works

You can withdraw your contributions penalty free at any time. The limit for a Roth IRA contribution is $5,500 or $11,000 per couple per year.

The pros

  • Withdrawing contributions is penalty free at any time
  • You don’t need a separate account for an emergency fund so ALL of your money is earning interest
  • If it’s a short-term issue you can resolve quickly then you can refund the money back into the account within 60 days
  • You can maximize your Roth IRA contributions instead of putting money toward a savings account/emergency fund that doesn’t earn much interest.

The cons

  • You can’t put the money back in if you’ve already hit the limit (example: you’ve already invested $5,500 for that year).
  • It gets a bit complicated come tax season
  • You can only withdraw contributions. Withdrawing earnings before age 59.5 results in a penalty (usually 10%).
  • It can take a couple of days to get the money if you withdraw
  • The Roth IRA must be open for 5 years counting from the year of your first contribution.

No one ever intends for an emergency to occur. On one hand you could use your Roth IRA as an emergency fund and never end up tapping into it until retirement like you originally planned. On the other hand – and in the unfortunate event that you do have an emergency – that’s money that won’t be earning interest. However, that money wouldn’t be earning interest anyway if it’s sitting in a low-earning savings fund (1% compared to 8-12%).

use your Roth IRA as an emergency fundYou don’t have to be all in

Keep in mind that you don’t have to put your full emergency fund into your Roth IRA. It may give you more peace of mind to keep $1,000-$2,000 in a liquid savings account for quick access during small emergencies and then tap into your Roth IRA if it’s a big-ticket emergency. Also, it would be helpful to consider what an emergency is to you. Your TV reaching the end of its life would not be considered an emergency; rather, you should practice the art of patience while you save up for a new one. Regardless of what you do, don’t use your Roth IRA as an emergency fund if you aren’t going to take the word “emergency” seriously and will withdraw money every time a non-emergency financial situation occurs.

Keep educating yourself

I’m still a little hesitant on the idea to use your Roth IRA as an emergency fund since it’s new to me, so I’ve been seeking out other opinions and articles from sources with a good reputation. I was able to find some wisdom from Investopedia on the topic – the process gets a little confusing, but used properly it seems like they recommend this action as well. Like any big financial decision, make sure you do your homework and understand what you’re getting into. Please share your thoughts and let me know what you think!

What are your thoughts? Would you ever use your Roth IRA as an emergency fund?

This post has been written by Jessica from



My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.

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