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.
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?