Financial Emergency! Tap the Roth?

With the unemployment rate rising practically weekly, many folks are facing real financial emergencies. An event such as a job loss is the perfect time to tap an emergency fund - money put aside for just such an unexpected occurrence. Unfortunately, many people still don't actually have emergency funds. As a result, such folks may consider tapping their Roth IRA money to get by while they look for new employment.

There are plenty of downsides to tapping your Roth IRA in an emergency, not the least of which is the permanent reduction in the future value of your retirement account. That said, a Roth IRA distribution may be the only option for some people. If the total you take out is less than the amount you had previously contributed, you won't owe any income tax or early distribution penalty. If you exceed your contribution total, the financial implications get ugly fast, so try your best to avoid going over that magic number.