"MyRa"...A New Retirement Buzz Word Or a Dud?

President Obama signed a presidential memorandum in January of 2014 directing the Dept of Treasury to create "myRA". The memorandum states myRA to be a "a new simple, safe and affordable “starter” retirement savings account that will be initially offered through employers and will ultimately help low and moderate income Americans save for retirement". 

The proposal is that beginning in late 2014, with this retirement savings account  individuals will be able to open accounts and begin contributing to them every payday. myRAs will be initially offered through employers, balances will never go down, and there will be no fees. myRAs will hold a new retirement savings bond that will be backed by the U.S. Treasury.

The key features of myRA include: 

  • No cost to open an account.
  • Contribute to savings through regular payroll direct deposit.
  • Individual decides how much to contribute every payday ($50, $25, $7 – any amount!)
  • No fees.
  • myRAs will earn interest at the same variable rate as the Government Securities Investment Fund in the Thrift Savings Plan for federal employees.
  • myRAs will not be limited to one employer  – the account will be portable.
  • myRA contributions can be withdrawn tax free.
  • Earnings can be withdrawn tax free after five years and the saver is 59½.
  • Account holders can build savings for 30 years or until their myRA reaches $15,000 – whichever comes first. After that, myRA balances will transfer to private-sector Roth IRAs.

What Do People Think about myRA? 

According to the writers over at CNNMoney, there are people on both sides of the fence on this topic, there are those who do not want to "give a broke and bankrupt government any more money". And there are those who keep their modest savings in accounts yielding less than 1% returns, to them a 2% guaranteed return while saving for retirement is worth considering. 

 We can see that one can start small with this retirement account and that this might be a great tool for low, middle-income or part time employees to get started on the path to retirement. 

So how does myRA transition to the next step?  The total contribution to the myRA caps at $15,000. Once this happens, the balance is transferred to a Roth IRA. The balance however continues to grow tax-deferred till it is withdrawn just like any other IRA account. 

Retirement experts say that people who run their retirement calculations regularly tend to save more intelligently. And those who have a payroll deduction towards retirement are more likely to keep up with it. 

John F. Wasik, the author of "Keynes' Way to Wealth: Timeless Investment Lessons from the Great Economist, says in his article on forbes.com, that retirement security is sagging and economic inequality is partially perpetuated by this country’s fractured retirement security policy. 

Although myRA offers a good opportunity to help people save for retirement without putting a lot of pressure on the current employer-based system and more mandates on small businesses, it remains to be seen how many sign up for this and can make a meaningful dent in the retirement-savings shortfall. 

Bibliography: www.myra.treasury.gov; Keynes' Way to Wealth: Timeless Investment Lessons from the Great Economist; Center for American Progress; www.irs.gov

As always, read my disclaimer here. Please consult a qualified tax professional for your unique tax needs. More of my contact information is on my website, www.mntaxsolutionsllc.com.



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