It's a common dilemma: You want to get your nest egg going, but still have many months of emergency savings to build up. You don't have to choose one or the other.
The Wall Street Journal suggests using a Roth IRA—alongside a regular savings account—to do double duty. Since the principal (the amount you put in, not any earnings) you invest in a Roth IRA can be withdrawn pentalty-free or tax-free at any time, that money will be available in case of emergency but probably yield a better return than the dismal bank interest rates. It doesn't have to be risky either, since you can choose more conservative investments in the Roth IRA.
A split approach—some money in a savings account and some in a Roth—might be the best compromise:
Clint Haynes, a financial adviser at Axius Financial LLC in Lee's Summit, Mo., suggests that rather than sock away six months of income in emergency savings—the conventional wisdom—investors put three months of income in a savings account and then work on building at least three months' worth in a Roth IRA.
A Roth account has a number of unique benefits, including the fact it can be used for more than just retirement.
How Beginners Can Start Saving for Retirement | The Wall Street Journal
Photo by discpicture (Shutterstock).
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