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5 Things to Know About Using Your Roth IRA as an Emergency Fund

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Emergencies happen to everyone. Unless you are living under a very lucky star, you will likely encounter a major financial emergency at some point in your life. The problem is that you cannot predict when it will happen.

If you run into a financial emergency, then you need to be aware of your options. One route is tapping into your Roth IRA account in order to fund the emergency. Although taking money out of your Roth IRA is not an ideal financial situation, it may be more advisable than taking out a loan from your 401(k) or taking out a high interest loan.

What to know before using your Roth IRA as an emergency fund

Before you decide to take money out of your Roth IRA in an emergency, you need to understand what is at stake and how to minimize your losses.

1. Take out only what you absolutely need

The general idea of a Roth IRA is to allow your after-tax money to grow and be withdrawn tax-free during retirement. When you choose to take money out of your Roth IRA early, you are losing out on the potential for compounding interest that can really grow your investments.

Remember, this account is one of the ways you can save for retirement. If you withdraw money from your account early, then that may result in postponing your retirement to a later date.

2. Understand contributions vs. earnings

You can take out money you’ve contributed to your Roth IRA any time, without penalty or tax. But, if you want to take out earnings — the money that you’ve made from investing your contributions — you could be subject to a 10% penalty on that withdrawal.

All distributions of earnings are subject to the 5-year rule. The rule means that if you withdraw your earnings before the Roth IRA account has been open for 5 years, then you will be required to pay taxes.

If you are under the age of 59 and a half, then you are able to withdraw money without penalties if the money will be used for one of the reasons below. However, you will still need to pay taxes on the earnings you withdraw from your account.

  • To pay for medical expenses or health insurance if you are unemployed
  • You become disabled
  • The account holder passed away
  • To pay for a first-time home purchase (up to $10,000)

If you are over the age of 59 and a half, then you are able to withdraw your earnings without taxes or penalties when you have met the five-year requirement.

3. Leave all rollover contributions in your account

If you choose to roll over a traditional IRA into a Roth IRA, that rollover is subject to a different five-year rule. In order to take a distribution without paying taxes, you will need to leave the money in the Roth IRA account for five years.

4. You will not have immediate access to the funds

Unlike your checking account, you cannot just withdraw the money from your Roth IRA for immediate access. In fact, it can take several days to secure your funds.

“It usually takes a few days, so in the real case of emergency, it is not a viable option,” said Rivi Biton, a CPA and JD at a tax firm in New York. If the financial emergency can wait for your Roth IRA distribution to come through, then you may be able to make it work. If you cannot wait for the distribution and have no other options, Biton recommended, “If credit card funds are available, using them and then paying them off with the distribution is a good option.”

It is important to get started on the distribution process as soon as you know that you need the money. Otherwise, you may not get it in time to solve your problem.

5. Invest back into your Roth IRA when the emergency is over

Once you have made it through the emergency, you will want to begin aggressively investing back into your Roth IRA. Although you will be unable to make up for lost time, you will be able to continue contributing to your Roth IRA.

Each year, you are allowed to contribute a certain amount to your Roth IRA. For 2019, you will be able to contribute up to $6,000 if you are under the age of 50 and up to $7,000 if you are over the age of 50.

The contribution window for your Roth IRA each year ends on April 15 the following year. For 2019, you will have until April 15, 2020, to contribute to your Roth IRA for the previous year. Taxes must be paid by the final April 15 date, which is why you have until then to finalize your contribution for the previous year.

Each contribution window is an opportunity to rebuild your account. When you are able to, move past the emergency and start reinvesting for your retirement.

Alternative options to fund emergencies

Tapping into your Roth IRA in the event of an emergency can seriously set back your retirement savings and it can be difficult to catch back up. But, if you can stick to just taking out your contributions and not your earnings, taking from your Roth can be a penalty-free option.

Here are a few other options to consider if you need to fund an emergency:

  • Create an emergency fund. Many recommend creating an emergency fund with between three to six months of expenses saved. The fund can help you through minor emergencies (an expensive car repair) to major emergencies (losing your job). No matter what kind of emergency life throws your way, having an emergency fund with enough cash will help see you through to the other side. At the very least it will give you a little bit of breathing room between a major emergency and finding the will to get back on your feet.
  • Liquidate a brokerage account. If you have a brokerage account that has grown over the years, it can be painful to liquidate it. However, it is an option with fewer penalties and taxes attached. You may be able to fund the emergency with the liquidated assets in that account.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

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Sarah Sharkey |

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Investing

Ally Invest Managed Portfolios Review 2019

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Ally Invest Managed Portfolios is a robo-advisor option from a trusted online-only financial institution.

It can make managing your money simple: Just answer a few basic questions about your goals and risk tolerance and your funds are invested for you. However, while fees are competitive, they aren’t the lowest among other robo-advisors’ offerings.

If you don’t mind the lack of bonus for opening the account, and you want to take a hands-off approach to building wealth, Ally Invest may be a good option.

Ally Invest Managed Portfolios
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The Bottom Line: Ally Invest Managed Portfolios is a decent robo-advisor that’s competitive with other managed portfolios online. But its lack of tax-loss harvesting, and fees that slightly exceed competitors may prompt you to look elsewhere if you’re not already an Ally customer.

  • The minimum deposit to invest in Ally Invest Managed Portfolios is $100
  • The management fee is 0.30%, no matter how high your account balance
  • Customer service is available 24/7, but there are no local branches to visit

Who should consider Ally Invest Managed Portfolios?

If you’re looking for a robo-advisor that allows you to build a diversified portfolio without a lot of advanced knowledge about investing, Ally Invest Managed Portfolios has you covered.

You’ll answer a few questions about your age; timeline for investing and risk tolerance; and whether you’re investing for retirement, wealth-building or a big purchase. Then, Ally Invest comes back with a recommended portfolio you can accept or tweak.

You can open a joint, custodial or Individual taxable account with Ally Invest Managed Portfolios, or can opt for a Traditional IRA, Roth IRA or Rollover IRA. Unfortunately, unlike with Ally Invest’s self-directed accounts, there’s no promotion or bonus for transferring funds into a managed portfolio. And, you’ll need quite a bit of money to get started — more than many competitors in the robo-advisor industry require.

Still, if you don’t mind the lack of brick-and-mortar locations and marginally higher fees, Ally Invest is a worthy competitor to consider when looking for help managing your money.

Ally Invest Managed Portfolios fees and features

Amount minimum to open account
  • $100
Management fees
  • 0.30%
Account fees (annual, transfer, inactivity)
  • $0 annual fee
  • $50 full account transfer fee
  • $50 partial account transfer fee
  • $0 inactivity fee
Current promotions

Ally Invest offers a $50 cash bonus plus free trades if you deposit or transfer at least $10,000. Bonuses go up from there and increase up to a cash bonus of as much as $3,500 if you deposit or transfer at least $2 million in assets.

Account types
  • Individual taxable
  • Traditional IRA
  • Roth IRA
  • 529 Plan
  • Joint taxable
  • Rollover IRA
  • Rollover Roth IRA
  • Coverdell Education Savings Account (ESA)
  • Custodial Uniform Gifts to Minors Act (UGMA)/Uniform Transfers to Minors Act (UTMA)
  • SEP IRA
  • SIMPLE IRA (Savings Incentive Match Plan for Employees)
  • Trust
Portfolio
  • Ally managed portfolios cover 3 asset classes and 9 major market segments
Automatic rebalancing
Tax loss harvesting
Offers fractional shares
Ease of use
Mobile appiOS, Android, Windows Phone
Customer supportPhone, 24/7 live support, Chat, Email

Strengths of Ally Invest Managed Portfolios

Ally Invest Managed Portfolios has some significant advantages worth considering:

  • Investing in a diversified portfolio is easy. You’ll answer basic questions about your investment goals and Ally Invest will suggest a portfolio with an appropriate mix of U.S. and foreign bonds, international and U.S. stocks, and cash. You can also tweak the suggestions Ally Invest Managed Portfolios makes, so you take on more or less risk based on your comfort level.
  • Ally requires a low minimum deposit of just $100 to open a managed portfolio account. While some of Ally’s competitors (such as Betterment) don’t have a minimum deposit requirement at all, $100 still falls on the very low side of the scale and makes this account extremely accessible to new investors.
  • Ally Invest Managed Portfolios offers automatic portfolio rebalancing. This helps to ensure you remain invested in the right mix of assets if certain investments under- or over-perform.
  • Customer service. Ally Invest offers phone, Email, and chat support. Customer service agents are available 24/7 with little or no wait. Agents will do their best to provide answers, although it may take a little time if your questions are technical since you may need to be transferred to an investment advisor.

Drawbacks of Ally Invest Managed Portfolios

You’ll also want to consider the potential downsides of choosing Ally Invest Managed Portfolios.

  • Ally Invest Managed Portfolios charges fees that are slightly higher than several competitors. You’ll pay .30% for Ally’s robo-advisor service, compared with .25% for Betterment’s digital account or for Wealthfront.
  • Ally Invest Managed Portfolios currently does not offer tax loss harvesting, which involves selling investments at a loss to offset taxable gains (although they do offer tax advantaged portfolios which add municipal bonds to Ally’s core portfolios). Competitors such as Betterment do offer this feature. However, Ally representatives indicate tax loss harvesting is expected to be rolled out in 2019 and investors with managed portfolios will be able to transition their accounts into a portfolio with tax loss harvesting.
  • No physical branches. If you’d prefer to go into a branch for local customer support, you’ll need to look elsewhere, such as E-Trade, which has more than 30 branches across the country.
  • Mobile apps aren’t very advanced. While Ally Invest allows you to use mobile apps on iPhone and Android phones to access basic account information, the offered apps aren’t as feature-rich as competitors such as Betterment.

Is Ally Invest Managed Portfolios safe?

Whenever you invest your money, there’s a risk you may lose some or all of it. This is no different with Ally Invest Managed Portfolios. The assets your robo-advisor invests you in could decline in value and your portfolio could lose money.

But Ally Invest is as safe as any trusted online brokerage, and there’s little risk of losing assets if the investment firm goes bankrupt. Ally Invest is in compliance with regulatory requirements according to FINRA’s Broker Check tool. Ally Invest is also a member of the FDIC and SIPC, both of which ensure cash in bank and brokerage accounts respectively.

Final thoughts

Ally Invest Managed Portfolios is a viable choice for investors looking for an easy, hands-off way to invest — especially with its low $100 minimum deposit requirement. Ally also promises to offer a broad range of socially-responsible portfolios, which should interest investors who want to consider more than just financial returns. But the lack of a promotional offer, higher management fees, and the fact tax loss harvesting isn’t currently offered makes Ally a less-than-ideal option for investors looking for the most affordable way to build a diversified portfolio. If you want a lower-cost option that does offer tax-loss harvesting, consider robo-advisors such as Betterment or Wealthfront.

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Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Christy Rakoczy
Christy Rakoczy |

Christy Rakoczy is a writer at MagnifyMoney. You can email Christy here

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Investing

SogoTrade Review 2019

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

SogoTrade is a relatively new face in the world of discount brokers, having joined the fray in 2010. While less well-known than some of its larger peers, SogoTrade quickly set itself up as a low-cost player that could offer high-volume traders prices that undercut those larger competitors. And even low-volume investors have a way to get those low commissions without significant amounts of trading. SogoTrade is a solid choice for frequent or high-volume traders, such as penny stock traders.

SogoTrade
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The bottom line: SogoTrade offers a low-frills experience at a competitive price.

  • Volume-based pricing that can lower trading costs substantially
  • Discounts on commissions for prepaid trades
  • Limited education and research offerings

Who should consider SogoTrade

SogoTrade really pitches itself to high-volume traders who need a low-cost way to get in and out of the market. If you’re in this demographic, SogoTrade may be for you. The ability to trade up to 100,000 shares for one low flat rate (not including stocks below $1 a share, which have an additional per-share fee) also may lure penny stock traders. Investors who aren’t in these two categories will find SogoTrade a harder sell.

SogoTrade is not especially well-suited to beginners, with limited education and research components, though it does have some of each. Those investors who don’t need those features may still find the broker an apt choice, however, especially if they’re willing to take advantage of SogoTrade’s discounts for prepaid trades.

SogoTrade fees and features

Current promotions

100 free trades in the first 30 days

Stock trading fees
  • $4.88 per trade (fewer than 150 trades per quarter)
  • $2.88 per trade (150 or more trades per quarter)
Option trading fees
  • $4.88 / trade + $0.50 / contract (fewer than 150 trades per quarter)
  • $2.88 / trade + $0.50 / contract (150 or more trades per quarter)
Amount minimum to open account
  • $0
Margin rate range6.25% - 11.00%
Tradable securities
  • Stocks
  • ETFs
  • Mutual funds
  • Options
Account fees (annual, transfer, inactivity)
  • $0 annual fee
  • $75 full account transfer fee
  • $75 partial account transfer fee
  • $50 annual inactivity fee if account drops below $100 and has not made at least one trade
Account types
  • Individual taxable
  • Traditional IRA
  • Roth IRA
  • Joint taxable
  • Coverdell Education Savings Account(ESA)
  • Custodial Uniform Gifts to Minors Act (UGMA)/Uniform Transfers to Minors Act (UTMA)
  • SEP IRA
  • Trust
Commission-free ETFs offered
Mutual funds (no transaction fee) offered
Mobile appiOS, Android
Customer supportPhone, Chat, Email
Research resources
  • SEC filings
  • Mutual fund reports
  • Earnings press releases

Strengths of SogoTrade

  • Volume-based pricing: SogoTrade has a multitiered system for charging commissions — one that’s highly advantageous for frequent traders and even penny stock traders who transact thousands (or even tens of thousands of shares) at a time. SogoTrade’s basic commission is $4.88 per trade — and with Charles Schwab and Fidelity both at $4.95, that’s not substantially different. But if you’re making more than 150 trades per quarter, SogoTrade slashes the fee to just $2.88 per trade (150 or more trades per quarter) . That’s great for high-volume traders. And for penny stock traders? SogoTrade’s commission allows you to trade up to 100,000 shares for the same flat rate, though you’ll have to pay a supplement for stocks trading below $1 per share. That supplemental fee comes to $0.0003 per share (10% of principal max) or 0.25% of principal.
  • Discounts for prepaid trades: Even if you’re not a frequent trader, you can reduce your commission to $3.88 or $2.88 per trade by buying prepaid packs of trades at that rate. SogoTrade allows you to buy 20 trades for $3.88 per trade or 50 trades for $2.88 per trade, and they cover stock trades and the base commission for options. So that could be an attractive (albeit unconventional) option for realizing low-cost trades without trading a lot. However, the prepaid trades are valid for only a year after purchase, so it’s a “use ‘em or lose ‘em” scenario.
  • Low options commissions: Given its rabid focus on low costs, it’s not surprising that SogoTrade also has low commissions on options. Pricing ranges from $2.88 to $4.88, depending on volume or whether you buy prepaid trades. Then options trades tack on a $0.50 per-contract fee, which is toward the lower end of the range. For example, Fidelity and Schwab charge their base rate plus $0.65 per contract. Even the low-cost Interactive Brokers typically charges $0.70 per contract, though with no base commission and volume pricing for very large orders. Always nice for traders executing more complicated options orders, SogoTrade charges only one base rate for multilegged options orders. So those complex three- and four-leg trades won’t ring up any extra base fees.

Drawbacks of SogoTrade

  • Limited education and research: For beginners, the lack of substantial educational support at SogoTrade may be a deal breaker. While there are some resources on the site, the entire education section feels more like an afterthought than a valuable addition to the SogoTrade experience. For example, the site’s educational links refer to articles on a third-party site. Similarly, while the broker offers a research center on its site, it feels too basic — even if it does offer some key functionality, such as identifying stocks at 52-week highs and lows and linking to a company’s press releases and SEC filings. The broker does point you in the direction of a free third-party monthly newsletter and stock reports. These resources may be a place to begin for newer investors, but more experienced traders will already have their own preferred resources lined up, so this likely won’t be much of a drawback for them.
  • Cheap but maybe not cheap enough: There’s no question that SogoTrade is targeting customers who are looking to minimize commissions. But the broker looks somewhat caught in the middle here. For the same base commission, rivals like Schwab provide a better educational and research component. Meanwhile, at the other end, cut-rate brokers can offer lower commissions, with Just2Trade providing $2.50 trades without customers having to pony up for prepaid trades (and no expiration dates on trades either).

Is SogoTrade safe?

SogoTrade is a relatively new player in the discount brokerage space, having debuted in 2010, but that doesn’t mean it’s not covered by the same protections as larger and more well-established brokers. Investors’ accounts are covered by the Securities Investor Protection Corporation (SIPC), which protects their value up to $500,000, including a cash limit of $250,000 in the event that the brokerage ceases to operate.

In addition, the broker’s clearing firm, Apex, has coverage up to an aggregate $150 million, with a maximum of $37.5 million for any single account, including a cash-only maximum of $900,000. Of course, these coverages do not protect against declines in the value of the securities in the portfolio.

Final thoughts

Cheap trades really are the priority at SogoTrade, and it shows throughout the website. If you’re a high-volume trader and can meet SogoTrade’s quarterly trade threshold, you may find a home here with the broker’s $2.88 fees. Even lower-volume traders who don’t mind the clunkiness of prepaying for trades may find SogoTrade interesting.

Still, SogoTrade seems caught in the middle of the market, especially for newer investors and many low-volume traders. Its service doesn’t offer enough education and research, relative to Schwab and Fidelity, for its base commission, and it’s not as cheap as other discount rivals such as Just2Trade and eOption (especially for options trades), brokers that are just as cutthroat about costs.

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Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

James F. Royal, Ph.D.
James F. Royal, Ph.D. |

James F. Royal, Ph.D. is a writer at MagnifyMoney. You can email James here

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