Using EF to make Roth contributions?

[jIM_Ohio]

If cash flow is tight, then I would not contribute from EF to Roths. I would use EF to make sure auto withdraws can happen without even concerned about when paycheck comes.

In my case I have EF in three 90 day CD ladders, with one 90 day CD maturing every 30 days. I also have one additional months bills in my accounts. Meaning my paycheck Feb 15 pays the March 1 mortgage payment, and my March 1 paycheck goes to the April 1 mortgage payment. So I have a 30 day cushion for most of my important bills (IRAs, mortgage). The life insurance, utilities and car payements are more "just in time"- meaning the payments are structured to occur the day after I get paid (or my wife gets paid).

I would work on setting up Roth to be auto deposits from checking account and getting budget to be more self sufficient (so you don't write so many checks).

The interest rate on student loans is low. Will the loans be paid off in less than 10 years?

I would make sure CC are paid off and not accruing interest while at a 0% rate. I missed payment can really add up. Sounds like it is under control, but I would error on side of getting CC paid off sooner.

[buzz]

I would set the $2k aside until April. At that time, if you don't need the money, put it in the Roth. If you have to withdraw it for an emergency, it's money that wouldn't have made it into the Roth anyway.

In the meantime, build your EF and start paying your debts down.

[maat55]

I want to know about this Retirement savings credit. Are you saying that if you fully fund a roth ira you will recieve or owe $600 less on your taxes?

[dardhel]

The savings credit is tiered and above certain incomes doesn't apply. If you are married filing jointly you only get .1% of up to 2k in credits / person for incomes of 34k-52k. These ranges go down sharply for single filers.

[jodi]

I can't answer to the specifics of the credit - Turbo Tax did it for me! Gotta love that Turbo Tax. But, yeah, definitely worth checking out if you're in the lower to middle income bracket.

I just did an Excel spreadsheet with anticipated income and expenses for the next three months. Barring any huge unforeseen expenses, it looks like we'll have the Disc. paid off by March 17 (two weeks before any interest would accrue), and $1500 in the Roth by April 4. Then I can either take the remaining $500 from the EF (and repay it within 2 weeks with my tax refund), or just forgo it. I'm not even touching the Lowes card until April or May, despite what some think. Why take money that could be invested to pay off a 0% cc debt? Even in May, I'll have three months to pay off $500. With my discretionary income, it won't be a problem.
Phew. I feel a lot better about our ability to do this. Thanks for the suggestions!

[cptacek]

Wrong. If the money is in a Roth, you can withdraw what you put in at any time with no penalty.

Er, unless I am mistaken, you can withdraw your contributions at anytime, but the earnings are subject 10% early withdraw penalty if you try to pull them out before you are 59.5 years old.

"withdraw what you put in" = "withdraw your contributions" in my mind. Sorry for any confusion.

[Snave]

I think Matt55 is right a few posts up when he says that the contributions must be in 5 years before they can be taken out penalty free. So, that would not be an option if you had an emergency.

[maat55]

It's not uncommon for people to misuse their EF, I'm glad to see that you are doing so in the best possible way. Since there is no penalty for withdrawing money you put in, I'm thinking about putting half of my EF funds in a roth.

[TBH]

I'm starting to feel pretty tempted to move some money out of cash savings and into our Roths as well. It's been years since I've maxed mine. I did max it for 2007 by saying what the hell and putting $2700 in from a cash savings account.

This year my goal is to save all my freelance income, so maybe that will help.

[Scanner]

This is a really good topic. . .I missed a lot of it and I don't know why.

It gets almost philosophical if you have read the books.

I get into these situations too. . .this is why I should do automatic withdrawals, but don't. I have to start doing that.

You have the choice of wiping out your EF or making your contributions.

After looking at your/my problem from a distance, I would say go for funding the Roth.

There's an old book about wealth accumulation that goes:

"Pay yourself first."(I think from the book The Richest Man in Babylon)

There is so much truth in that. There is always somebody with their hand out and since the Roth is a semi-flexible money reserve, I don't see anything wrong with it - you are after all only talking about $2000.00.

IF you dont fund the Roth, you have paid someone else (or set money aside for that).