A new retirement savings account
” a Simple, Safe, and Affordable Starter Savings Account to Help Millions of Americans Start Saving for Retirement” – The White House Office of the Press Secretary
In an effort to help more Americans start saving for retirement, plans were announced to start a new retirement savings account called myRA. This new account is now available. Here is what you need to know.
What is a myRA?
Per the White House, the myRA (pronounced “my ARR, AAA”) is meant to be a starter retirement account for employees that do not have access to traditional 401-k accounts through their employers. The contributions would be deducted from your paycheck by your employer and deposited in your myRA account. While the contributions would be in after-tax dollars, the earnings would be tax-free. In essence, the account acts somewhat like a Roth IRA from a taxation point of view.
Who is it for?
Per the White House, this account is for the approximately 50% of full-time employees and the 75% of part-time employees who do not have access to employer-sponsored retirement plans.
What are the benefits?
- Low contribution amounts. You can start your account with as little as $25 and regular contribution amounts as low as $5.
- No fees. The account would have no administrative fees for either the employer or employee.
- Principal guarantee. Unlike most other retirement savings programs, your principal is guaranteed by the U.S. Government.
- Broad availability by income level. You qualify to participate if your household income is lower than $191,000 ( $129,000 for individuals).
- Account transportable. If you leave your employer, you retain your myRA and may continue to fund it.
What are the downsides?
Low earnings. The only investment option is one that will be designed like a type of U.S. Savings Bond. The proposal is to have the bond be similar to the government’s Thrift Savings Plan (TSP) who’s rate was a low 1.47% in 2012 and only averaged 3.61% from 2003-2012.
Rollover requirement. Once the balance of your account reaches $15,000 you are required to roll it over into a Roth IRA account. It is uncertain whether you can then reopen another account or whether you may no longer be eligible for myRA.
Employer role. The plan must be accepted and administered by your employer in order for you to participate.
What you should know
- The accounts are now available. Interested employers are now offering this retirement savings plan option. So check it out.
- There is no guarantee your employer offers it. As proposed, the myRA requires employers to adopt the program. If this is not done by your employer, you will not have access to the program.
Contact us for more information.