Could a MyRA Encourage You to Save for Retirement?

by Miranda Marquit · 0 comments

One of the issues that politicians, pundits, and financial professionals are concerned about is the “retirement crisis” that seems to be afflicting the country. A number of people haven’t saved anything for retirement, in spite of the ability to do so with the help of tax-advantaged retirement accounts.

There are many reasons that people don’t save for retirement. Some of those reasons include the following:

  • They worry that they don’t have enough money to start saving
  • The are concerned because these accounts are investment accounts, and they are worried about losing principal in a market crash.
  • They don’t like the fees that sometimes come with retirement plans, particularly 401(k) plans.
  • They feel overwhelmed by the investing options offered by various plans, and are not sure how to proceed.
  • They don’t work for “the man” and aren’t sure how to set aside money as someone who is self-employed.

While there are ways to get around these issues with the current system, particularly if you open an IRA, many Americans are still intimidated with the idea of retirement investing. A little education can go a long way, especially for those who are self-employed and trying to save for retirement.

But, if you are interested in getting your feet wet with retirement, one possibility is the MyRA, which was recently introduced by President Barack Obama during his 2014 State of the Union Address.

What is the MyRA?

MyRA stands for “my retirement account.” It is a new tax-advantaged account offered by the government. It can be offered through the workplace, so direct deposit is an option. In fact, any situation in which direct deposit is available, it’s possible to open a MyRA (you might not be able to use this account if you are self-employed with certain types of structures, though). However, your work won’t administer the account.

Instead, the account is meant to be administered by the government. The account can be opened with as little as $25, and it’s possible to contribute as little as $5 of each pay check to the account. There won’t be any fees with the MyRA, and you don’t have to worry about picking investments, since the account is pegged to the Thrift Savings Plan Government Securities Investment Fund. The rules are similar to those of a Roth IRA, in that you contribute with after-tax dollars and your earnings grow tax-free over time. You can also withdraw your contributions at any time without penalty, and the yearly contribution limit mimics the IRA limit.

There are a couple of rules, though. You have to make less than $92,000 to contribute. Also, after your account balance reaches $15,000 or you’ve had the account for 30 years, you have to roll it over into a Roth IRA. On top of that, your principal is safe; the government guarantees it.

For the most part, many savers are better off opening an IRA and getting the potential for better returns. However, for those who are wary of equities, and who want cash-like investments (even with the lower returns), this isn’t a bad choice. For those who meet the requirements, it can be a place to park the “safety” investments like cash and cash-like products while other portions of the retirement portfolio are in accounts like IRAs and 401(k)s. It adds one more tax-advantaged account to help your retirement savings efforts.

And for those who aren’t saving anything at all, this is better than nothing.

What do you think of the MyRA?

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