My tax CPA just brought me up to date on a new retirement account called the “myRA” and I wanted to make you aware of it as well. I am offering this myRA explanation to help you see various options available to better prepare for retirement. Your task is to compare and make the best decision for your retirement planning.
The myRA (“my retirement account”) is a type of Roth IRA sponsored by the United States Treasury and administered by Comerica. It was launched nationwide in November and is intended for taxpayers with taxable income who lack access to retirement savings plans at work.
The program was developed in response to the finding that millions of Americans lack adequate retirement savings — many because their employers do not offer a 401(k). Based on a 2015 Federal Reserve report, 31 percent of non-retired people said they have no retirement savings or pension whatsoever. Additionally, a 2013 report by the National Institute on Retirement Savings found that the average near-retirement household had only $12,000 in retirement savings. Among workers who do not participate in a 401(k) or other defined contribution plan, 42 percent said it’s because their employer does not offer one. Furthermore, among part-time workers, a BLS Economic Release (2015) found that 62 percent of workers do not have access to a retirement plan at work.
In response to this large number of people who have no retirement savings program at work, in 2014 the Treasury Department started working on the myRA, which includes a Treasury savings bond that acts as the basic investment for these new retirement accounts. The program also includes a financial agent to help administer the myRA and make it easy for savers to fund their account through their employer.
Here’s how the myRA works. The myRA is a government-sponsored Roth IRA with no fees and is guaranteed by the government to never lose value. Contributions may be made in one of three ways:
- Paycheck. Set up automatic direct deposit contributions to myRA through an employer.
- Checking or savings account. Savers can fund a myRA account directly by setting up recurring or one-time contributions from a checking or savings account.
- Federal tax refund. At tax time, direct all or a portion of a federal tax refund to the myRA.
The myRA is designed as a starter retirement account for those who work for employers who don’t offer a 401(k). It was created for first-time savers. As myRA accounts grow, holders have the option to transfer their balance to a private-sector Roth IRA once it reaches $15,000.
To participate in the myRA you must meet the same eligiblity requirements as a Roth IRA. If you earn less than $131,000 (individual) or $193,000 (couple) you are eligible to participate in a myRA. The savings bond interest is not taxed while in the account and won’t be taxed at all if you leave it in the account until after age 59.5. You can contribute just a few dollars or up to $5,500 per year (or $6,500 per year for individuals who will be 50 years of age or older at the end of the year). In addition, you can also withdraw from your myRA tax-free and without penalty at any time (Roth IRA requirements apply).