If Your Savings Account For Emergencies Is All Set, Is Max'ing Your Roth Ira Contributions The Best Strategy?
It seems like the Roth IRA is so flexible: you can put your kids education savings in there, you can withdraw principal after five years without penalty, etc.
So does it make sense to just simplify things and have a) a checking account, b) a savings account (for emergencies) and c) a Roth IRA for all other savings?
(I should note that I can’t save more than about $4,000 per year.)
What do you think?
That is a good plan, though, I wouldn’t leave too much in a bank account. A better way to save for emergencies is put the savings in a money market fund. It works similar to a savings account, except that they may have a higher rate of return. When you want to take money out, it would take 5-7 days to receive a check.
If you want to save for your kid’s education, then a 529 plan may be a good choice, depending on how old your kids are. If they are in high school, opening a 529 plan may not be a wise choice because it takes awhile to see any returns on your investment.
As for your Roth IRA, you should only use it as a way to save for retirement. While the IRS allows you to use it for other purposes such as education or first time home buyer, IRA main purpose to help you accumulate wealth for retirement.
Anyway, you have a good game plan to save for the future. You might want to see if you have beneficiaries in your savings. Better yet, you should get a Will.
Good plan.
As long as you don’t have to use the money before 5 years. If you are saving (down payment for a house) for something that you will use the money before 5 years use a money market account- less yield but no penalties.
529s are ok- but what if your child doesn’t go to college or (God forbid) dies before college age? Yes, you can move to another child but what if that is your own child, there are usually a TON of fees for not using a 529 account for higher education.
roth ira’s are great i would reccomend every one that is eligible put money away for retirement in a roth ira and if possible don’t withdraw from it and let your money accumulate but you are right the other benefits can make it beneficial for some other emergencies. By the way you can also withdraw from an roth ira for the purchase of a first home also