For millions of workers who don’t have access to an employer-sponsored retirement plan, the new myRA (which stands for My Retirement Account) enables them to save for retirement via paycheck deferrals. The account is free for employers to offer and employees pay no upfront or investment fees to participate. The plan was announced at last year’s State of the Union address, but exact details of the savings program were only recently released by the Treasury Department.
Presently, the only way to fund a myRA is via direct deposit deferral from paychecks by employers who participate in the program, although other funding options should be available soon. Also note that the myRA is owned by the individual worker and not the employer, so it is portable when the employee moves on. Non tax-deductible contributions are invested in a new nonmarketable, electronic retirement savings bond that earns interest at the same rate available in the Government Investment Fund (G-Fund) of the Federal Thrift Savings Plan. At 1.5 percent last year, the returns are comparably low to historical returns from equity investments. However, it’s backed by the United States Treasury and has no risk of losing money. This particular bond is available only to participants in the myRA program.
Annual contributions are subject to the same limitations as other IRAs ($5,500 per year; $6,500 for age 55-plus in 2015). The myRA differs from a traditional IRA in that it is treated like a Roth, featuring tax-exempt earnings and no required minimum distribution requirements after age 70½. Account owners may withdraw their contributions at any time without paying taxes or a penalty. Their earned interest may be withdrawn sans tax and penalty under the same conditions as other IRAs, such as after age 59½ or to purchase a first home. The myRA is generally available to anyone who earns an annual income of less than $129,000 for individuals and $191,000 for married couples filing jointly.
Clearly the account is designed for low-income earners, as the maximum balance is limited to $15,000 (comprised of contributions and earnings) or 30 years of participation, whichever is reached first. Therefore, a myRA owner who saves $14,000 over the next three years has room for only $1,000 of growth in the account, at which time he would have to transfer the entire account balance to a new investment. Thus, it is designed to be a starter savings vehicle later transferred to a “traditional” Roth IRA that offers more investment options.
To open a myRA, participants should apply at myRA.treasury.gov, then print and give the direct deposit authorization form to their employer. There is no minimum contribution requirement to open an account, and savings can be tracked online by account owners. Employers are not required to administer or contribute/match employee contributions to myRA accounts. They simply facilitate a payroll deduction from the employee’s paycheck to his designated myRA account each payday.