It sounds like you already did it, so why are you asking if you are doing the right thing? Was it an actual rollover, or did you just take funds from one account and deposit them into another one? It sounds like a rollover since the yearly limit for contributions is $5k. However, I’ve never heard of rollovers except for 401k’s into ROTH IRA’s.

First many are talking about how terrible it is to make withdrawals from a Roth. BUT we’re talking about emergency funds. You should never withdraw from your emergency fund anyway…UNLESS ITS AN EMERGENCY! A new coach purse or even a downpayment for a new car might not qualify (a used car you need to get to work because you don’t have any other way…that’s an emergency. An emergency operation…that’s an emergency. Raiding your fund for a downpayment on a house because you can’t afford it otherwise but will saddle yourself with a mortgage that’s higher than your rent…NOT AN EMERGENCY and also not a good idea).

If you only have $5000 and your choices are
1) put it in a savings account and call it an emergency fund
2) put it in a Roth and call it an emergency fund

You should do the 2nd one.

Because otherwise you never again get the chance to contribute to the Roth (next calendar year rolls around, you’ve missed out which is worse than putting the money in and taking some out later). And, since it’s a designated emergency fund in your mind you probably won’t use it anyway. So the money will sit there and grow. But it’ll do a lot more for you than if it sat languishing in low rate savings.

Well what the heck, why don’t we make all our savings accounts a Roth? That sounds pretty swell, you still get all the investment options, and tax free withdrawals anytime you want.

the problem with looking into it reverse:
it depends on what your definition of emergency is. Many people use emergency funds as a basket to dip into for the occasional overspending from their written budget. routinely doing this with a Roth can have major repercussions on future gains. i am not saying NEVER to use the Roth as an emergency fund, just to limit it to TRUE emergencies (catastrophic unexpected events) and still try to set up a more liquid emergency fund in a savings account.

1) What money can you withdrawal penelty free? Is it any money you put in during that calendar year? Or any money you put in within the past 12 months?

Obviously if it’s by the calendar year, and you have an emergency in January, then you have a problem.

2) After 12 months, or after the calendar year, depending on question 1, your emergency fund, BECOMES your retirement savings, becuase you can no longer tap into it tax free. So whatever your emergency fund needs to be, minus the annual amount you put into your roth, needs to be stored away somewhere else.

Other than that, I think it’s a pretty good idea.

To Pochax, I think you could look at it in reverse. Where you would put $5,000 aside for emergency fund, you could put it into the roth and if you don’t have an emergency then great, you just made the compounded interest!