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What You Need to Know about myRA

What You Need to Know about myRA

UPDATE 7/28/17: The Treasury issued this press release regarding its plans to end the myRA program. According to the press release, "The U.S. Department of the Treasury today announced that it will begin to wind down the myRA program after a thorough review by Treasury that found it not to be cost effective."

You have to start somewhere. When it comes to retirement savings, the first steps are critical.

According to a 2015 Federal Reserve Report, 31 percent of non-retired individuals said they have no retirement savings or pension whatsoever. Among workers who do not participate in a 401(k) or other defined contribution plan, 42 percent say it's because their employer does not offer one. And for part-time workers, it can be even more difficult. A 2015 BLS Economic Release found that 62 percent don't have access to a retirement plan at work.

With millions of people without retirement savings, a push from the White House in 2014 lead to the creation of myRA. These retirement accounts were developed to remove common barriers to saving and to give people who don’t have access to an employer-sponsored retirement savings plan or lack other options a chance to prepare for their financial needs in their golden years.

Getting started

myRA is essentially a Roth IRA retirement savings account with no start-up cost and no fees. There are no minimum contribution requirements, making it possible to save in small amounts or whatever suits someone’s budget.

Individuals with earned income below $131,000 if single, head of household or married filing separately, or $193,000 if married filing jointly, may open a myRA. Contributing is simple. Money can be taken directly from a paycheck, a savings or checking account or by directing all or a portion of a federal tax refund to the account when taxes are filed. You can save up to $5,500 per year, or $6,500 per year if you are age 50 and older.

myRA is essentially a Roth IRA retirement savings account with no start-up cost and no fees. There are no minimum contribution requirements, making it possible to save in small amounts or whatever suits someone’s budget.

You can have a maximum account balance of $15,000, or a lower balance for up to 30 years. When either of those limits are reached, savings will be transferred or rolled over into a private-sector Roth IRA where you can continue to grow your retirement stash. Learn more here.

Do keep in mind, points out Joseph Carpenito, a financial advisor with Raymond James that much like a Roth IRA you can pull out principal at any time, but earnings withdrawn before age 59 ½ are subject to income taxes and a 10% early withdrawal penalty.

How is the money invested?

You don’t have to worry about not feeling like a financial expert to invest. Money in a myRA is invested a new United States Treasury security, which earns interest at the same variable rate as investments in the government securities fund for federal employees. This investment is back the United States Treasury and the account carries no risk of losing money.

Smart strategies

One major mistake made with all retirement savings plans is invading the account. "You are robbing yourself of future assets and financial security," says Kate Crowther, director of government relations for Ubiquity Retirement + Savings.

The key to she says, is to adjust your contribution with increase in pay if the election is in dollar amounts, not percentages. Escalate the savings rate annually to maximize future benefits. "If you face a hardship, decrease your savings rate, do not cash out."

A good first step

Jamie Hopkins, professor of retirement income planning at The American College shared his thoughts on this new retirement option. "This is a surprisingly smart savings vehicle for someone starting out in their first job. Many planners and experts harp on the myRA for having a safe and conservative investment, but this is exactly what a first time saver should be invested in," says Hopkins.

There’s something to be said for safety when you’re an investing newbie. "Behavioral finance tells us if we put a new saver in a risky investment, like the stock market, and a 2008 crash occurs, we lose a lot of those investors forever," says Hopkins. "Instead, start with an easy to understand and safe investment early in their savings and move them to riskier investments as their tolerance for risk grows."

Although myRA has a significant limitation in that it has one investment option -- Treasury securities, Hopkins points out that myRA is really designed to be a starter savings vehicle and that it is to be one of many tools. It is to way to get in the habit of socking away money and to feel comfortable doing so. "While it doesn’t solve the retirement income shortfall that exists in the U.S., it is a step in the right direction."

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Anonymous   |     |   Comment #1
How about a link to the MyRA website?
Anonymous   |     |   Comment #2
Sorry, just saw it.
Thanks for the article
Anonymous   |     |   Comment #3
Gotta fund those treasuries somehow. 
Anonymous   |     |   Comment #6
When I was young, my introduction to saving was seeing my deposit grow at a free market rate of 5 percent.  I could see, that by delaying gratification of spending, the interest would give my savings an additional boost.  And my reward would be the means to obtain something larger, at sometime in the future.  With the artificial manipulation of interest rates, and the obfuscation of inflation, the interest gained from savings is unnoticeable.  And the things to buy, are increasing in cost, at a rate that far outstrip the rational to save.  To match, just the inflation component only, in one years rent, would take 12 years of interest savings growth. 
Ultimately those that would be interested in myRA are the children, of the upper middle class, and individuals who have already topped their IRAs, and need another place to stash 14k.   
Just another government "cash for clunkers".  This time it's "no interest for insolvents".
Anonymous   |     |   Comment #7
MyRA is a childlike, government initiated make work (for bureaucrats)  scam for lazy adults. It's more "nanny state" for the brain challenged. My prediction is that, at the first personal crisis, most individuals will raid these "investments" with the passion of Attila the Hun. "It's my money, I want it now" will be a popular refrain. The real nanny state solution would have been to stabilize social security, but that problem is far more useful as a wedge issue during elections.
Anonymous   |     |   Comment #8
Do consider that savings and loan rates have both decreased over past few decades.   While savings rates are marginal, loan rates are correspondingly low. I am interested in comparing savings to loan to inflation rates over the past few decades.  The recent benefit appears shifted to those who do not require liquid cash, and can invest in the markets and real estate for a longer time period.

I found the myIRA does not supplement the annual IRA limit.  I would rather shelter or "stash" my money in the normal IRA/Roth.  I suppose if already investing in US Treasury bonds, myIRA would eliminate fees.  

Following the mantra, only invest in something you understand, myRA offers one option.  Hopefully not the only one.

From myIRA.gov get answers:
Can I contribute to myIRA if I have another IRA account?
Yes, as long as the total of your contributions to all of your IRA accounts, including your myRA, does not exceed your annual contribution limit.