myRA: What You Need To Know About The Newest Retirement Plan

If you tuned in to President Obama’s ‘State of the Union’ Address last week you heard him mention a new type of retirement account called the ‘myRA’.  While the President didn’t go into many specifics as to what exactly the myRA would be in his speech, The White House has since released more details.

The prospect of having a new retirement account at our disposal piqued my interest. So I went digging to see what it was all about, and more importantly, if it’s a good idea to open a myRA. Here’s what you need to know.

What is the myRA?

We all know that most people have shockingly little stocked away for their retirement, and according to The White House, about half of American workers don’t have access to a 401(k) or similar employer sponsored retirement plan.

The myRA aims to be a “starter” retirement account for people who have little to no savings. You will contribute with after-tax dollars and in retirement you will be able to withdraw money without having to pay any tax on your returns, so in that regard it functions much like a Roth IRA.

However, the similarities pretty much end there. The myRA is all about keeping your retirement savings safe and secure. Which is why you won’t find hundreds of stocks and funds to invest in with the myRA.

The myRA will pay an interest rate equal to that paid out by the ‘Government Securities Investment Fund’ (G-Fund) that federal employees have access to in their Thrift Savings Plan. While you won’t be able to match the high returns of the stock market, any money you put into a myRA is 100% backed by the federal government. You can never lose your principal in the myRA.  Think of it more like a savings account on steroids and not a typical investment account.

Because the myRA isn’t tied to your employer, it’s portable. So if you change jobs you don’t have to worry about doing anything with your myRA. This is an advantage over something like the 401(k) where you have to worry about rolling your account over into an IRA each time you change jobs.

 Who Is Eligible To Open A myRA?

Individuals who make $129,000 per year or less and couples who make $191,000 or less per year (why do couples get penalized?!) are eligible to contribute to a myRA.

You’ll be able to open a myRA with as little as $25 and can contribute as little as $5 each payday. Just like the Roth IRA, you’ll be able to contribute up to $5,500 per year into the myRA.

Being that the myRA is a “starter” retirement account, there is a catch. Once you’ve accrued a balance of $15,000 or your account has been open for 30 years. You’ll be forced to roll the account over into a regular Roth IRA such as one from Scottrade or E*Trade.

Should I Contribute To The myRA?

Obviously this is completely an individual decision. If you meet the requirements and value the safety of your money over getting the highest returns possible, than the myRA is a good option for you. Even if the security of your principal isn’t your top goal, we should all have some percentage of our retirement savings in safe investments. Opening a myRA and having that portion of our portfolio backed 100% by the federal government could be an enticing option to consider.

Final Thoughts

If you do decide to open up a myRA, remember that it alone isn’t enough to guarantee you the retirement of your dreams…and it’s not supposed to! The myRA is supposed to get you started on your retirement saving journey and to supplement the other retirement accounts that are out there. It’s not supposed to be a cure-all for our country’s embarrassingly low savings rate.

I think the myRA will be a big hit among part-time workers and others who don’t have access to a 401(k). I know that if this came out back when I was working part-time at different restaurant jobs, I would have jumped at the opportunity to get started saving for retirement with only $25.

The myRA itself won’t solve our nation’s savings problem. But if it gets more people to start saving and leads them into a Roth IRA or other retirement account, it could result in a great step towards Americans having a more financially stable future than they might otherwise have.

 

Readers: What are your thoughts on the new myRA? Do you plan on opening a myRA account?

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22 Responses to myRA: What You Need To Know About The Newest Retirement Plan

  1. It sounds like SS part deux. While the idea is good my guess is that it’s more to have a new source of buyers for Federal debt since I’m pretty sure that’s all you’re able to invest in. Not the worst thing since we’ve yet to default but I hate to see the government taking on more debt. I’ll be curious to see how well received it is because the impetus is still on the individual to get it set up which unfortunately most people don’t take the time to do or we wouldn’t have such pathetic retirement account balances as a nation.

    • I agree that the major hurdle with this, as most other retirement plans is the person still has to have the ambition to get started. Maybe there is a large number of people out there who are scared of the stock market for whatever reasons & will find this to be the alternative they were looking for.

  2. AverageJoe says:

    The only great part of this is the $25 minimum. Saving into an account that pay G Fund rates is an absolutely horrible way for a long-term investor to save for retirement. This account shows (sadly) just how absolutely uneducated the average American saver really is…..

    • You’re definitley not going to be able to retire on this alone, but I think it’s meant as more of an introduction to retirement savings rather than an answer. I didn’t like the $15k max at first, but the more I think about it the more I like that it forces you to transition to a Roth IRA at that point where you’ll have more investment options to choose from.

  3. I’m with JC, it sounds like Social Security. Only in dedicated accounts. I guess my interest would come down to the rate of interest the accounts earn. If it’s substantially above my money market account, I would be willing to take a look. Of course this would come with a healthy dose of “Washington Risk”. You know where they get in a financial bind and decide to protect us from ourselves, by taking the money. I guess as a citizen who owns more than gold coins and canned goods, that’s always a risk though :o) Thanks for the article
    -Bryan

    • But unlike Social Security, you know your account will be there when you need it :)

      I think over the past 5 years the G-fund has paid an average of 2.8% interest. Probably better than a money market account, but nothing to get excited about either.

  4. I missed the State of the Union so hadn’t heard about this… thanks for the great primer! I do agree with the rest… with the government interest rate, it doesn’t seem like a very good investment. But I guess if it gets people to invest some money rather than none, that is always good…

    • Hopefully it works as a nice intro to retirement investing for those who haven’t taken the leap yet. It really seems like its set up to be a stepping stone account for new savers.

  5. Moneycone says:

    Thanks for the write up! I think this is good. Yes, you won’t get wealthy with just myIRA, but it is very simple to get started and easy to understand. Not everyone wants to be invested in the stock market!

    This is better than putting all your money in CDs or a bank account. It focuses on the unsophisticated saver.

    The more options we have, the better. I welcome this.

  6. The part of the state of the union that has been quoted regarding the MyRA kills me… Obama says that the great gains in the stock market last year didn’t help workers who don’t have 401(k)s and then introduces the MyRA, yet that vehicle doesn’t allow investors access to the stock market.

    The question I’m most interested in is how early/often you can roll the contributions into an IRA (the release states you must when it reaches $15k but not if there is a minimum dollar amount or length of time).

    I don’t understand why we can’t just increase IRA contribution limits so nearly everyone (for instance, nonworking spouses) can save reasonable amounts, not just those with participating employers. You have to be an employee to participate in this plan (from my reading). I’m not an employee so this is yet another employer-based retirement plan that I’m not eligible for.

    • I’m pretty sure you don’t have to be an employee for this plan, but you can fund it via a payroll deduction.

      I agree changing the rules to make IRA’s more encompassing makes more sense, but the benefit in this seems to be that your principal is 100% as if it were in a bank, and you receive the returns of the G-fund for a bit of an extra boost over a bank or money market acct.

  7. David says:

    Great article!
    My only question is: why is it that you must make such a sufficient amount per individual to open myRA?

  8. Interesting – I have the same question as David. That’s unique..

  9. Life Ant says:

    Another great idea! The entire executive branch should be mandated to participate in MYRA along with
    OBAMACARE!

  10. I see the benefit of this type of saving plan. Like you, if I had access to this when I was working part-time, I would have jumped at the chance to contribute. I do dislike the fact that higher income earners cannot participate – as if all of these people are excellent at saving for retirement (note my sarcasm there), and that you are capped at $15K. I see people hitting $15K and then never rolling the account over and not saving anymore. To get people to save for retirement, it needs to be as easy as possible. By forcing then to roll over the account, many will just leave it.

  11. I like the myRA idea as it is a step towards getting some people started with retirement savings. Remember, this isn’t meant to be a retirement savings solution. It’s meant to bridge a gap so that savers will be able to eventually transfer into an IRA (many brokerages will require a minimum amount to open which may be hard for lower income people to save) and have some better investment options.
    However, I’m not sure how successful this plan will be. I think one of the bigger hurdles, besides needing more financial education, is that many people live paycheck to paycheck and won’t sign up for this plan with the belief that they absolutely can’t afford even the $25 contribution.

  12. Chris says:

    Why would you say something like “Think of it more like a savings account on steroids and not a typical investment account.”
    If it were on steroids, it would have a much higher ROR. A much safer savings account might be a better comparison.

    Other than that, it seems like everything else is spot on Jay! Great job!

    • I used that comparison because it offers all the safety of a savings account yet provides a better ROI (2-3% for myRA vs 0-1% for Savings these days), where as a typical investment account you’d expect to get the 6-10% returns the stock market can average.

      Maybe not steroids, but a savings account that goes to the gym? haha

  13. Basically this account is for middle class people to make them feel safe and secure. It is definitely beneficial for middle class people, but this is only one part of it, another part is that it would not give more value to an investor.

  14. Green_Knight008 says:

    The myRA is essentially investment garbage, slightly above the garbage loss you would get in a savings account. The last 3 years according to the TSP G-Fund had an average of 1.94% return, 1.89% last year. Considering that the BLS CPI states that you’d have lost 6% buying power over the course of those 3 years, you’re essentially losing money or barely breaking even. G-fund’s stated goal is to beat inflation-and it hasn’t the last 3 years based on the BLS & TSP statistics, since you’re stating that the advantage is that you don’t lose money-that’s true you don’t lose the numbers, but you can lose value, which the G-fund has.
    There is no minimum value for a real (ROTH/Traditional) IRA-just those set by the custodial institution you open it through. The only possible reason I can see to use this would be to put the money into the myRA long enough to open a real IRA-the myRA is simply a bad investment and I have to say I’m a bit disappointed to see any financial writer trying to stump for this garbage.
    It’s a minor step up from a savings account, with the disadvantage of reduced liquidity since it takes longer to get at your money than from an ATM. It’s certainly not better than any other flavor of IRA, 401k, or nearly any other financial or physical investment imo.
    Not only will you not get wealthy with myRA, but you may well enjoy a decrease in the buying power of your “invested” nest egg.

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