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Additional Savings Options

Individual Development Account (IDA)

IDAs are matched savings accounts.

  • When an account is matched, it means another organization such as a foundation, corporation, or government entity agrees to add money to your account to match the money you deposit and save.
  • Organizations will sometimes match the money people save in IDAs to encourage low-income families to save money on a regular basis.
  • IDAs are based on the concept that asset building is necessary to break the cycle of poverty, and to help families become financially independent.
    • Asset building refers to people purchasing or holding items that will help them financially in the future.
  • Organizations involved in IDA programs want to help low-income families become self-sufficient.

If you open an IDA, the money must be used for a specific purpose. Allowable purposes include:

  • Job training
  • College education
  • Small business start-up
  • Home purchase

529 College Savings Plan

A 529 plan is an education savings plan operated by a state or educational institution. It is designed to help families set aside funds to pay for future college costs.

There are two kinds of plans: prepaid tuition and savings. Every state offers at least one kind of 529 plan.

Advantages
  • Investments grow tax deferred, and distributions are not subject to federal tax, and often state tax, if they are used for eligible college costs of the beneficiary.
  • Plan assets are professionally managed either by the state’s treasury office or by an outside investment firm hired as the program manager.
  • Everyone is eligible; there are no income limitations or age restrictions.

How to Choose the Best Investment

Strategies for Choosing the Best Investment

  • Learn as much as you can about the investment from the prospectus (a formal, legal document required by and filed with the Securities and Exchange Commission) financial magazines, and the plan administrator.
  • Remember that past performance is not a guarantee of future performance.
  • Consider how long you plan to keep your money in the investment. If you invest over time, you are more able to ride out the ups and downs of the stock market.
  • You can protect yourself from the risk of investing all of your money at the wrong time by following a consistent pattern of adding new money to your investment over a long period of time. By making regular investments with the same amount of money each time, you will buy more of an investment when its price is low and less of the investment when the price is high.
  • You should have a mix of investment products that reflect your needs for return, safety, and long-term savings.
  • Re-evaluate your investments from time to time. You ideal composition of investment products will shift over time.
  • Determine how much risk you are willing to tolerate. Remember, there is a trade-off between risk and return.
  • Ask your employer about any retirement accounts that are offered through work.
  • Learn more about investment options from your bank’s customer service representative or a reputable financial advisor.
  • Do not invest in anything you do not fully understand. Be wary of unsolicited offers you hear about stocks being promoted for sale when you cannot find many details about the company.
  • Visit investor.gov.

Remember, investments are NOT federally insured. You could lose the interest AND the principal of your investment.


Saving for Retirement

Saving for Retirement Tips

  • Define and set a goal – online calculators can help you plan for how much you need to save for retirement.
  • Make the most of your paychecks until retirement by cutting back on unnecessary expenses. Try to reduce or eliminate debt.
  • Contribute as much as you can to your employer’s retirement plan. Ask your employer for a “summary plan description.” It describes in plain English your rights under the plan. Make the most of your paychecks until retirement by cutting back on unnecessary expenses.
  • Open an IRA – IRAs are easy to get. Find out more about IRAs from your bank or financial institution.
  • Do not touch your retirement savings. If you withdraw your retirement savings now, you’ll lose principal and interest and you may lose tax benefits or have to pay withdrawal penalties. If you change jobs, leave your savings invested in your current retirement plan, or roll them over to an IRA or your new employer’s plan.