Friday, July 16, 2010

Some Roth IRA rules for withdrawls


By Robyn Davis Sekula

Last year, my husband and I opened up Roth IRAs - one for each of us. It's a great way to save for retirement, as you don't pay taxes on the earnings when you take it out decades later once you're retired. Traditional IRAs tax the earnings, which can be substantial.

I was glad to run across this post today by Peter Anderson which explains some of the Roth IRA rules for withdrawls. Since we don't have substantial emergency savings yet, I've wondered if could treat the Roth IRA as an emergency fund. And by that I mean only in the case of extreme emergencies, such as one of us becoming permanently disabled, losing a job, getting cancer, etc.

As it turns out, yes, you can take money out of it early, according to his post. But of course, that's not the point of a Roth IRA, and you should avoid it unless you're absolutely desperate. Ideally, you should have emergency savings set aside separate and apart from your Roth IRA. (We're working on that.)

I thought this provided some great rules, so I'm posting a link to it here:

http://bit.ly/9WbHHX

1 comment:

  1. Though it's comforting to know withdrawals may be taken in cases of extreme emergency, it can be dangerous (and potentially COSTLY) to think of a Roth IRA as an emergency fund at all. Many exceptions apply to the hardship withdrawal rules; that's why it is so important to establish a completely separate emergency fund. I try to think of my IRAs as "untouchables." I treat all contributions as sunk costs.

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