No Retirement Account at Work? Open Up a myRA Account
Eileen St. Pierre, The Everyday Financial Planner
We all know we need to save more for retirement. But many employers do not offer retirement plans. The federal government has started a new retirement account called myRA that is designed for those who do not have access to a retirement plan through work. Think of it as an entry level retirement account.
This new account was started to remove many of the common barriers towards saving for retirement including:
- The cost and fees of opening and maintaining an account.
- Difficulty in making investment choices.
- Concerns over losing money.
This account is a special type of Roth IRA. Like all Roth IRAs, contributions are made with after-tax dollars. You do not get a tax deduction when you make the contribution, but the money will be tax-free in retirement. You can make contributions three ways:
- Via direct deposit from your paycheck. Ask your employer for a direct deposit authorization form.
- From your checking or savings account. You can make regular or lump-sum contributions.
- From your federal tax refund (Form 8888). For the 2015 tax filing season, you need to set up your myRA account in advance. In the future, you will be able to open one when you file your federal taxes.
Unlike private-sector Roth IRAs, there is no minimum balance to open an account. You could open one with $5 if you want. Unfortunately, employers cannot contribute to these accounts.
The same annual Roth IRA contribution limits apply to these accounts. For 2015 and 2016, individuals can contribute up to $5,500 plus an extra $1,000 if you are age 50 or older. You may also be eligible for the Saver’s Credit, a special tax credit to encourage those with lower incomes to save for retirement.
What makes the myRA account unique is that these accounts are not designed to be permanent. Once the balance grows to $15,000 or you contribute to the account for 30 years (whichever comes first), you are required to rollover the account to a private-sector Roth IRA.
- The hope is that by the time this happens, you will have developed enough financial confidence to manage the private-sector Roth IRA.
- The government is still working on a program to provide transition assistance.
- This is what I see as a weakness with this plan. Many people are not going to know what to do and may be vulnerable to bad advisors. The federal government is not known for its communication skills.
The slogan for the myRA campaign is “simple, safe, and affordable.” Contributions are invested in short-term US Treasury Securities. For those of you familiar with the Thrift Savings Plan (TSP) (the retirement plan for federal workers), the money is put into the G Fund. This is a very safe investment.
- In 2014, the G Fund earned 2.31%.
- Over the past ten years, the fund averaged 3.19% annually.
- Basically, this account is designed to keep pace with inflation but don’t expect much more unless interest rates really start to rise..
For more information, go to the official government website, www.myra.gov. You can sign up for an account right on the site.