This topic has come up in conversation many times, but the gist is, what do you do with a large sum of cash that you may or may not need soon (ie. emergency fund)? Next year, we’re going to put aside almost $1000/mth towards our Roth IRAs – except we won’t know until March/April 2016 if we can contribute to our Roths or not (due to income limits). There’s a really good chance we will be able to based on our deductions, but it’s not a 100% chance, so I don’t want to put money into a Roth to have to pull it back out again at tax time because we made too much.
$1000/mth is a lot of money to not have working for us. Our best interest rate is 0.79% at CapitalOne360 (to give you an idea, we’re getting $45/mth on the 85k waiting for our house purchase). If we put the money into our taxable investment account, I’m not sure that I’d go through the effort of taking it out as I’d pay a short term trading fee on at least $3k of that (I’m a buy and hold investor). I need to research if Fidelity will let me transfer in-kind between the taxable and Roth accounts – then I can just move over $5500 of FSTMX and be done with it. If we can’t contribute to a Roth for the previous year, it’ll just end up in our taxable account anyway.
The Roths are only going to have a max of 11k annually (unless we get another limit bump from the IRS), but our emergency fund will have almost 60k in it. That’s a lot of unemployed little green workers. I’m tempted to split how we deal with it and put 5-6 months in actual cash, and the rest in a taxable investment account with a relatively low risk. I know we don’t want to be losing it all in a market crash, but at the same time, I feel bad for not putting it to work for us.
What do you do with your “cash” buffers/emergency funds? Do you just leave them in a checking/savings/money market account or invest them more conservatively?