I have been thinking about putting my emergency fund into a Roth IRA (in an FDIC insured High Yield Savings Account, so liquidity isn't an issue). My reasoning is as follows:
- I can always withdraw my contributions without a penalty.
- The interest payments (which I can't withdraw) are not a major contribution to my emergency savings
- I cannot fully fund a retirement account and build up a large enough emergency fund at the same time right now, so by putting the money in a taxable account, I will lose the opportunity for the tax savings forever. On the other hand, if, in the future, I can afford to save above the Roth contribution limits, I can use the extra money to start a new emergency fund, and invest some of the old one.
Are there any reasons why I shouldn't go ahead with this?