One of the best places to stash your emergency fund is in a Roth IRA using a high-yield savings account, which creates an emergency fund within the Roth.

That’s according to financial guru Suze Orman.

Key Points About This Article: 

• Stash your emergency fund in a Roth IRA using a high-yield savings account, which creates an emergency fund within the Roth.
• Other analysts suggest that you maintain a separate emergency fund with at least three to six months of living expenses in a liquid account.
• Also: Take this quiz to see if you’re on track to retire ^(Sponsored)

Other analysts suggest that you maintain a separate emergency fund with at least three to six months of living expenses in a liquid account. That’s because while you can withdraw your original contributions to a Roth IRA without penalty if you access the investment earnings within the account before the age of 59 1/2, you can get stuck with taxes and penalties.

That would make for a less-than-ideal situation for an emergency situation where you might need to pull out more than just your contributions.

If you’re thinking of taking Suze Orman’s advice, you should check in with your financial advisor first. After all, it’s better to be safe than sorry, and in need of money.

The Benefits of Funding a Roth IRA

A Roth IRA is a retirement account funded with after-tax money. They offer tax-free growth and tax-free withdrawals in retirement. That means you don’t have to report investment earnings, or the money your money made when you file your taxes.

In addition, if you’re age 59½ or older and have owned your Roth IRA account for at least five years, you can pull your money—contributions plus earnings—from it without paying any penalties or taxes. Or, as we noted above, if you have an immediate need for cash, you can withdraw your contributions – but not the earnings on those contributions – without a penalty.

However, there are negatives to be aware of.

For one, Roth IRA contributions are made with money that has already been taxed, meaning you won’t see any immediate tax breaks. However, the trade-off is that you’ll receive tax-free withdrawals by the time you retire.

Two, Roth IRAs have income caps. If you earn too much, you might not qualify for one. Three, there is a cap on yearly Roth IRA contributions. At the moment, the annual contribution limit for a Roth IRA in 2024 is $7,000 for those under 50 and $8,000 for those 50 and older. The limit for 2025 is the same. 

Three, according to USA Today, “A Roth IRA could be just the ticket if you’re earning a steady paycheck, hanging out in a lower tax bracket, and looking for a retirement plan with the flexibility to pull contributions without taxes or penalties. By contributing to a Roth IRA, you’re securing a tax-free future while retaining access to your savings along the way.”

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.