We wanted to take a minute to write about the new myRA, a workplace retirement savings account introduced during the Presidential State of the Union address and recently authorized into existence through an executive order. This new legislation is aimed at helping employees whose current employers don’t offer a retirement plan to secure at least a basic savings option.
Ultimately, the myRA will be similar to a regular Roth IRA with a few special and unique features. First, contributions are invested in newly created government bonds that are guaranteed to earn a rate equivalent to the Thrift Savings Plan Government Securities Investment Fund (around 2% historically). Second, your account principal will be fully protected and ensured to never decrease, with each dollar being backed by the US Government. Third, anyone can open an account with as little as $25 and contribute as little as $5 (unfortunately, employers will not be able to contribute funds (matching or otherwise) to an employee’s myRA account). Participants should be aware that the annual limit for all combined “RA” accounts (myRA, traditional IRA and Roth IRA) cannot exceed designated limits ($5,500 for 2014).
Similar to Roth’s, myRAs contributions are made using after-tax dollars that can be withdrawn tax-free at any time without penalty. Contributions of up to $5,500 per year (under age 50) or up to $6,500 (over age 50) grow tax-deferred, but program availability is limited by income (e.g. only married couples with modified adjusted gross incomes up to $191,000 and individuals earning up to $129,000 can participate).
Though not anticipated to be available until the year 2015, myRAs will help households earning up to $191,000 to make after-tax contributions through a direct payroll deduction. As has proven key to the success of more traditional retirement savings plans, the automatic nature of this saving instrument will help to increase the likelihood of ongoing voluntary participation.
While all of the details on this new retirement investment vehicle haven’t been finalized, it has been suggested that individual myRA accounts will have to be transferred to a private sector Roth IRA once the account reaches $15,000 or 30 years (whichever comes first). They can also be transferred to a private sector Roth IRA at any time at the account holder’s discretion.
The administration is aggressively touting the benefits of this new savings instrument, highlight:
- The safety of the principal
- The ability to make very small contributions
- The lack of fees to establish and/or maintain a myRA
Look for more information in the coming months as the President works with the Treasury to establish the final guidelines. From our perspective, any plan that assists US citizens in saving for retirement is beneficial.
If you have any questions about this or any retirement savings options, contact Lescault and Walderman at 866-496-2042 for a free consultation.