Today I’m covering something new being rolled out for retirement planning starting this month. The myRA account.
What is a myRA account? Well first off, it stands for my Retirement Account. It’s a program run by the US Department of Treasury in an effort to make saving for retirement accessible to more people. It was initially created to address those workers who don’t have access to employer-sponsored retirement plans like 401Ks and profit sharing plans.
Employers who currently do not offer a retirement plan but wish to encourage their employees to save for retirement can find resources on the www.myra.treasury.gov website. They can pass this info along to their employees.
Interested employees sign up for an account at www.myra.treasury.gov. However a worker’s employer must be set up for direct deposit if they want to participate in this plan. Currently there are no other options available for funding the account.
A big benefit for the employer is that there is absolutely no cost to to have their workers sign up for the myRA. The accounts are all set up and maintained by the Department of Treasury. The employer’s only responsibility is to ensure that direct deposit instructions given to them by the employee are met.
Most of the benefits of the plan favor the employee, starting first with the fact that the myRA is a Roth IRA account with the US government as the custodian, as opposed to a private company like TD Ameritrade. In a Roth IRA, the account grows tax-deferred, and qualified withdrawals at retirement are tax-free. This also means that you can only contribute a maximum of $5,500 annually (or $6,500 if you are over 50), and cannot participate at all if your adjusted gross income is over $131k if you’re single, or $193k if your married and file a joint tax return.
Contributions are also easy to make, as myRA will be funded directly through paycheck withholding, so once you set up your direct deposit, savings happens automatically every time you are paid. There’s no bank account required.
Additionally, you can get started saving at a very low funding amount. Minimums for the account are $25 needed to start, and $5 per paycheck for future contributions. All of this is also at no cost, whereas some private custodians may charge fees for such small balances.
The funds you contribute to your myRA are invested in a security identical to the G Fund of the Thrift Savings Plan available to federal employees. This investment has a principal guarantee so that your balance will never go down. It also pays interest based on the weighted average of all treasuries with maturities 4 years or more. In essence it provides a safe investment that has the higher interest you’d get from owning longer-term bonds without the risk of loss.
While the idea of encouraging more people to save is appealing, there are some drawbacks associated with the myRA account. For one thing, there is only one investment type, a US treasury bond-like holding backed by the government. From a diversification standpoint, that is not ideal, and if for some reason the US Treasury were to go bankrupt, there goes your myRA savings.
This also doesn’t really help anyone who already has a Traditional or Roth IRA set up with a private custodian. In fact it would be redundant and since you can only contribute a total of $5,500 annually to all IRA accounts it doesn’t really make sense to utilize the myRA.
One of the huge benefits of 401Ks and even Traditional IRAs is the immediate reduction of taxable income received by contributing to these plans. Since the myRA is structured as a Roth, money contributed to the plan is considered after tax funds, meaning yo’ve paid income tax on it. Thus, there is no immediate tax relief. However, so long as the rules don’t change, you reap the benefits later when you are able to pull money from this account tax free in retirement.
The myRA is structured to only help you start saving for retirement. An account must be rolled over to a “regular” Roth IRA held at a private custodian when its value reaches $15,000 or after 30 years.
GOOD OR BAD? WAY TOO EARLY TO TELL
The government does recognize that the burden of retirement has shifted almost entirely to the individual’s shoulders. They see this as a way to make saving more accessible to all workers, especially for those in small businesses where the employer thinks having a retirement plan is too much of an expense. As the myRA programs gets rolled out, we will have to wait and see if it accomplishes the goal of increasing preparedness for retirement.