Emergency Funds – Bonds or Cash / Taxable or IRA or Roth
I’m in the process of reallocating some of my accounts. As part of that allocation, I want to designate some $$’s to an emergency fund to be equivalent to ~ 3 years of my estimated expenses. I could keep the Emergency $’s in cash but I’m considering bonds instead. Do you “guys” have any thoughts on the Bond approach? And could the emergency funds be held in my IRA rather than Roth or taxable acct?
BTW – I’m 64 and retired.
Thank you in advance for any and all responses.
Permalink Submitted by Alan - IRA critic on Thu, 2020-04-09 18:31
You could treat some portion of a Roth IRA as the secondary portion of your emergency fund since you can withdraw your Roth regular contributions and your conversions without penalty after 59.5. SInce you probably do not want to incur additional taxes in the year of such emergency, allocating part of your TIRA to this is probably not a great idea unless it is last third you would tap. You could use a federal MM fund or equivalent bond fund, or ladder some CDs to do this, but will not be receiving much yield for some time. The first year of your emergency fund is best held in taxable accounts, so your IRAs are not raided.