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As I mentioned in my OP, liquidity is a big concern for me. Putting extra money away that I can't touch until X date has little appeal to me. I know that you can typically access your IRAs at any time for any reason, but it usually comes with tax penalties, too.
If you can't stomach $7k for a ROTH and 10k for an IBond, then you need to keep that "flush cash" in the bank.
There are some exceptions for the Roth account. As I recall, five years after the account is opened you can pull any or all of your contributions without penalty. (Any investment return would be subject to penalty if withdrawn early, though). Since liquidity is a concern, at least get those accounts opened with a small amount of money to get the clock started. Then once you hit the five-year mark you can max them out each year.
My memory could be a bit rusty on this, so please verify.
Roth contributions are after-tax, so you can withdraw your contributions at any time without penalty. The 5-year rule you're referring to is for gains on said contributions. So the 10% penalty would be applicable if gains are taken out of the account before 5 years; however, there are exceptions to the penalty, similar to a traditional IRA.
Roth contributions are after-tax, so you can withdraw your contributions at any time without penalty. The 5-year rule you're referring to is for gains on said contributions. So the 10% penalty would be applicable if gains are taken out of the account before 5 years; however, there are exceptions to the penalty, similar to a traditional IRA.
This definitely seems more reasonable. I can certainly stomach waiting 5 years.
Roth contributions are after-tax, so you can withdraw your contributions at any time without penalty. The 5-year rule you're referring to is for gains on said contributions. So the 10% penalty would be applicable if gains are taken out of the account before 5 years; however, there are exceptions to the penalty, similar to a traditional IRA.
Ok. Thanks for the correction. I'm not able to stuff all of the retirement account rules into my brain, apparently.
You can withdraw Roth individual retirement account contributions at any time.
I-Bonds can be cashed out after one year. You will sacrifice only the last 3 months interest.
I think the Roth is probably the best option based on what I'm gathering. I'll also be sticking with my ETF portfolio, because I can buy/sell that off any time without penalties.
I think the Roth is probably the best option based on what I'm gathering. I'll also be sticking with my ETF portfolio, because I can buy/sell that off any time without penalties.
FYI, the current interest rate on I bonds is 9.62 percent. You can buy I bonds at that rate through October 2022.
( I doubt it will go down much in November, but I do hope it goes down just for the greater good LOL.)
If you have 1 year of living expenses in an emergency fund, that is probably enough liquid $. The rest of the money could be put to other uses.
You said that you are putting 11% into your 401K, and that counts the employer contribution. This seems low to me. Also, are you guys single income? If not, what percentage is spouse contributing to their retirement account? It would be a good idea to use a retirement calculator to ensure you are on track there.
You will, OP. Some day you will need something.
Make the extra payment to yourself; that is, put it in the bank.
Here is how and why I say that: How: Put ALL your paycheck in a money market account and draw out only what you will spend that month. Draw it on the first. Why: That makes the extra car payment and extra house payment automatically. The "payment" is in the form of the money left in your account after you drew what you needed. That way, when you want to pay off your car or your house, the money will be there.
Background: We retired in 2010. In my working life my income varied greatly during the year. I started doing what I suggested many, many years ago. It solved a LOT of problems. If I wanted a car today I could buy it and pay cash - after all I have been making "payments" for many years, but I made them to myself.
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