Should a young couple save money in retirement accounts or stock money in an emergency fund.?

Question

A question for all of you advisers & planners out there...

Should a 24 year old couple save money in a retirement account (after normal 401k contributions) like a Roth IRA or use that money to invest in a safe money market account to get to the 3-6 month level of savings financial professionals say you need in case of an emergency. One other thing to note is that this couple has principal currently sitting in Roths > 5 years, so money can be withdrawn from the Roths tax & penalty-free in case of an emergency.

I may be answering my own question, but I wanted to get other perspectives on this issue.

Answer 1

You did answer your question, the best thing to do is to stash the money in the IRA especially considering that you can only contribute a certain amount per year so save that limit in there but the portion that you want to be for emergencies you should keep in a somewhat liquid account like a money market fund or whatever you would keep yoour emergency fund in outside of an IRA.

You can take money out the Roth penalty free at anytime without penalty as long as it's part of your CONTRIBUTIONS and there's exemptions for penalties on EARNINGS under certain circumstances You seem aware of the way the Roth works so you probably know this already.

So bottom line there's nothing to lose by putting the money in the Roth over some other savings vehicle and hopefully no emergencies will arise and you'll have a fatter retirement account or even before that more money that you can tap into without paying tax on the earning on the early distributions that are tax and penalty free.

Answer 2

You answered your questions. Technically yes, you can withdraw taxfree/penaltyfree from Roth. But then that is going to hurt you a lot. Never ever touch your nest egg. One dollar taken out of that investment may be worth 4 dollars during your retirement.

Regarding where you should put your future savings. I would say that since you have 5000 in Roth and are regularly putting in 401k, start putting your savings for next few months in a CD or Money Maket for emergency. Once you have accumulated 3-6 months of expenses in that emergency fund, stop there and route all future savings to Roth.

But if possible do not loose the opportunity to put 8000 in Roth for 2006. That hurts later on. I slipped my 2002 IRA contribution and am still regreting it. I can not go back and put it there now !

All the best !

Answer 3

I think it's a good idea to save money in both.

Yes, you can use the Roth as an emergency fund, but that means it's not there for your retirement later. You can't undo taking that money out.

So for now, I would recommend splitting your saving plan up to fund both, until the emergency fund is fully funded, then divert that amount back to retirement accounts.

Answer 4

Start of with an emergency fund first, something like a money market account that you can draw first in case of an emergency.
Then when your happy with the amount, start your retirement account. You will feel much better and be able to make riskier investments decisions, with out the stress of some type of loss.

Answer 5

You're never too young to invest and save for your retirement. Invest the maximum contributions into your 401k, Roth IRAs and Annuities. Also invest in long term mutual funds. With the compounded interest return rates you should be be able to retire very comfortably. Don't rely on Social Security. But if you qualify, then that's just additional gravy.

Answer 6

Mutual funds is a good way to save for your retirement if that is what you are trying to accomplish. The market has its highs and lows ,but over the course of 30 years and you are 55, the returns will gve you a nice monthly income, apart from your other pensions.
Consult a Financial Advisor, and then make an informed decision. Good Luck.

Answer 7

I like the idea of saving 3-6 months (I'm conservative, so I did 6 months) of income, and then start saving for retirement. That is good insulation and protection for your nest egg, which you can start aggressively building once you've socked away the short-term funds.

Answer 8

when you save your money up, put a bit in your wallet and than hide the rest like, in a box, keep it on you all the time, give it to your mum, under your pillow if your a light sleeper, get a drawer that you can lock, put inside a photo album behind a photo. if he continues than don't do anything for him, if he asks you to do stuff than say why should i? you don't treat me right so i wont treat you right.

Answer 9

both, if you could save it both.

Yes you could learn invest by yourself. it is your money, you should know how to do with it. for starter check this site out.

http://www.pathtoinvesting.org/index_fla...
http://www.stockcharts.com
http://www.streettalklive.com>... university. a lot amount of information. It will serve you well
I accumulate in good amount in 401k at the young age.I could share with you. when consider invest in stock market. you should consider basic 3 things:

fundamental analysis==(economic data,finincial health, management, business model, competetion)>>what to buy

technical analysis==(chart+indicator)>> when to buy

Sentiment/schycho analysis==>>mood of investor, Contrarian point of view.
Market cycle===>> check out book Trader Almanac by jeff hirsch will give you inside stuff
When you combine 3 thing, It is one of the powerful knowledge goinh with you for the rest of your live

At the age of 32. my 401k is amassed 73,000.00 and 30000.00 in taxble account. by follow simple rule

Answer 10

IRA = Tax Free = It's dumb not to have one!