Emergency Fund as a Roth?

I’ve read so much literature on why you shouldn’t use your Roth as an emergency fund account.  However, I want to delve into why I do.  First of all, I do have anywhere from $250-500 in my regular savings account that easily transfers to my checking for any day-to-day “emergencies” (e.g. new brakes, plumber, etc).  I have an automatic contribution of $50 from my paycheck biweekly that goes to this savings account so I don’t have to even think about it. Generally about the time my savings is above $700 I deposit $500+ into my Roth accounts.

Let me tell you why I do it this way.  I do understand that I can only deposit $5,500/ year and once I take out my contributions to this account I cannot “catch up” so to speak. However, for me as a single mom just having a Roth is a luxury.  Plus, my savings account gets basically no interest (0.03%), but if I put it in my Roth I am generally making about an average 7-9% return.

So my money is doing double duty by saving for retirement and providing major emergency relief, if needed. Once you put money inside of a Roth IRA, it can be invested in a wide range of options such as stocks, bonds, bond funds, money markets, or mutual funds. Depending on your risk tolerance and desired returns, investments ranges can be selected from varying degrees of mixed portfolio. While the Roth IRA might not provide the instant liquidity of a savings or checking account, it can still provide access to funds within a few days.

This summer I did have to withdraw from my Roth when my A/C went out and needed replaced.  Tax rules allow us to withdraw contributions tax-free at any time (just don’t touch investment gains until retirement or you’ll be hit with taxes and penalties).  So by the time the A/C man was available to install the money was already transferred into my checking account and I didn’t need to put anything onto my credit cards.  I look at this differently than some people because I’m not using my Roth as an Emergency Fund, I’m making my Emergency Fund a Roth.  If no major repairs come up then that money is staying put for retirement and I’ll be able to pull out the earnings tax free when I’m over 59 ½.  However, in the event something drastic happens I do have it there and it helps me sleep better at night knowing that it’s there.

Let me be clear that I will NEVER touch the earnings on the Roth either.  I only have withdrawn the contributions and only as-needed.  I don’t dip into Roth for vacations or other nonessentials because I can’t simply “return” the money later. Any money put back into a Roth is considered part of the allowed contribution for that particular year.  For example, if you’re allowed to contribute $5,500 a year to your Roth and you withdrew $1,000 for plane tickets in January, you can’t put in $6,500 ($5,500 + the $1,000) when you get your December work bonus. You can only contribute $5,500 total/year regardless of how much you took out and that’s it.

I personally use both Betterment and WealthSimple for Roth accounts (I like to diversify).  If you’d like to test them out here’s a link to get 90 days free through Betterment  and this link for WealthSimple gets you $15,000 managed free for one year. Currently, my Annualized Earnings for my Betterment account are 9.8% (I’ve had it for two years now) and for WealthSimple are at 3.8% (I just opened it in April). I have really liked Betterment, but I’ll write more on WealthSimple after I’ve had the account at least a year.

Do you have a Roth account?  If so, who do you use and why do you like them?