Most financial advisors recommend keeping a certain amount of money in reserve. If you need ready cash for some purpose, you should have funds that you can reach easily.
One strategy is to keep your cash in a Roth IRA. You always can withdraw the amount you have contributed, without owing any income tax or a penalty. Moreover, once you have had the account for five years and have passed age 59-1/2, you can withdraw any amount (including investment earnings) without paying any tax or penalty.
There’s still time (until April 17) to put money into a Roth IRA for 2011. The upper limit for contributions is $5,000, or $6,000 if you were at least age 50 last year. Workers and their spouses can each contribute to their own Roth IRA, although income limits apply.
For example, you can’t contribute to a Roth IRA for 2011 if your income was over $122,000 this year, or over $179,000 on a joint return. Even if you are over those income limits, you can make a nondeductible contribution to a traditional IRA and then convert that amount to a Roth IRA. (You may owe income tax on the conversion.)
