By: Laura Walton AFC®
Designed for those who don’t have an employer retirement plan available and are discouraged by the costs and complexity of other options, the myRA offers “no costs or fees, no complicated investment options, no risk of losing money” and works a lot like a Roth IRA.
- The account is opened online at myRA.gov.
- Your non-earning spouse can have a myRA, too.
- There are no fees or minimums.
- You must have earned income; there are income limits.
- You can contribute $5500/year ($6500 for those over 50).
- You can set up payroll deduction or auto pay from your checking/savings account for as little as $5/month.
- You can direct all or part of your federal tax return to your myRA.
- Your money is invested in U.S. Treasury bonds which returned 2.31% in 2014 and 3.19% over the ten-year period ending December 2014.
- Once the account reaches $15k (or 30 years from your first deposit, whichever occurs first) the account stops earning interest and will be transferred to a private sector Roth IRA (you can transfer the account before then if you choose).
- Contributions for the prior year can be made until April 15 of the current year.
- You can make contributions to a myRA in addition to an employer retirement plan; combined contributions to all IRA accounts can’t exceed the annual limit ($5500/$6500).
- Your contributions can be withdrawn without penalty at anytime; earnings on your contributions can be withdrawn tax- and penalty-free after 5 years and after age 59 ½ or if you meet certain conditions such as using the funds for the purchase of a first home or higher education.
- Generally, your beneficiary will have to withdraw the funds from your account; however, there are different rules if your spouse is your beneficiary.
While the myRA is patterned after the Roth IRA, its low balance and low earnings act as “training wheels”. A $15,000 balance is a fraction of what is needed at retirement and while the investment in U.S. Treasury bonds offers safety, the return barely keeps up with inflation.
However, the myRA offers a place to start to save for retirement and the benefit is that once we start saving, we build a habit of saving. And, once we see our balance growing, it enforces the habit.
This positive start along with understanding what additional saving is needed to achieve a secure retirement (we recommend using a retirement calculator) is a first step on a path to success for the 55 million workers who don’t have access to a 401k or pension.