IRA are more than retirement accounts

Document created by engineer on May 22, 2016Last modified by on Dec 5, 2016
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My Two Cents Money Advice that Pays Off Contest


IRA are More than Retirement Accounts


Retirement may seem like it is a long way off as a college student.  I am working only part-time and going to college full time.  I still live at home with my parents to save money.  I am allowed to contribute to an IRA (Individual Retirement Account) because I have several part-time jobs with earned income.


There are multiple benefits to starting a IRA now.  Retirement accounts are not counted as assets in financial aid applications, such as the FAFSA (Free Application for Federal Student Aid).  Did you know that if you open a Roth IRA for five years or more, you can withdraw the money for a down payment on a first home or to pay for college without a penalty?  The retirement account collects interest tax free, so your money is working for you.  The interest is compounded.  Your money is working for your future.


I have been running my own lawn mowing and baby-sitting businesses as well as working as a teacher’s aide during summer school.  I do pay income taxes on all of my earnings, but I can put “earned” money into a Roth or traditional IRA retirement plan now.  My mother suggested that with every job that I contribute at least a minimum of 10 percent and the deposits will automatically increase with a percentage deposit to account for higher earnings.  The retirement account interest rates are higher than most savings accounts currently.  I think of the IRA deposits as a withholding to myself for my future. 


My money advice is to make your money work for you with compounded interest and long term investments. The idea of providing for myself in the future is very important to me.  I save money by not buy new textbooks, if there is a used textbook that will work. I make all trips in the car on the same day to save gasoline.  Living at home is saving money while I am attending the local technical college and it is jump-starting my financial security.  Money is needed to survive as an adult person.  Illustration of basic 10 percent compounding interest:  The five-year example interest of $269.87 is a little more than 37 hours of wages at $7.25 an hour.  Interest is like a paid vacation for earning interest from the deposited money.  I want my money to work for me and individual retirement accounts are a way that I can accomplish this goal. 






YearEarningsDeposit 10%Subtotal 3% Interest Annual Balance
2014$2,000 $200 $200 $              6.00 $                  206.00
2015$2,500 $250 $450 $            19.68 $                  675.68
2016$3,000 $300 $750 $            42.77 $               1,468.45
2017$3,500 $350 $1,100 $            77.05 $               2,645.50
2018$4,000 $400 $1,500 $          124.37 $               4,269.87
$4,000 $          269.87 $               4,269.87
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