The U.S. government’s IRA plan, myRA (short for “My Retirement Account”), is now available for everyone. This post includes all of the details you should need to know.
What is myRA?
MyRA is an attempt to help ward off the zombies.
To summarize myRA, it’s basically a post-tax retirement account (similar to a Roth IRA) that invests in the Thrift Savings Plan (TSP) Government Securities Investment Fund (eligible to federal employees) – aka the “G Fund” – which is a U.S. Treasury savings bond. Investment returns in the G Fund have averaged 2.94% over the last 10 years and has more than doubled the rate of inflation over the last 30 years.
You can then transfer over your myRA to a private-sector Roth IRA at any time or automatically when the account reaches 30 years old or $15,000 (whichever comes first).
Principal protection is big part of the appeal. The myRA site promises that your account balance will never go down in value. The security in the account, like all savings bonds, will be backed by the U.S. government.
Why have myRA?
Here’s the premise for myRA’s existence: this country is heading for a massive retirement crisis that could trigger a zombie apocalypse. Look at some of these frightening facts:
- Fewer than half of private sector workers are enrolled in a 401K plan and many don’t even have the option to enroll.
- a 2016 BLS Economic Release found that 63% of part-time working Americans don’t have access to a retirement plan at work.
- a 2013 report by the National Institute on Retirement Savings found that the average near-retirement household had only $12,000 in retirement savings.
- Nearly half of 401K accounts are cashed out when workers change jobs (which can result in massive tax penalties).
- The retirement deficit between what Americans have actually saved for retirement and what they should have saved for retirement is already $7.7 trillion!
myRA Contribution & Income Limits
MyRA is a form of Roth IRA, so it shares the cumulative annual maximum IRA contribution limit. For 2016 and 2017, total annual contributions to all your IRAs combined cannot exceed $5,500 per year (or $6,500 per year if you are age 50 or older). It is also eligible for the Saver’s Credit.
Additionally, there is a lifetime contribution limit and account age to myRA. When your myRA reaches $15,000 or 30 years from your first contribution (whichever comes first), the account will stop earning interest and the balance will have to be transferred to a private-sector Roth IRA.
The goal of the myRA plan is to make saving for retirement more accessible to those who don’t have access to a 401K. It is open to just about anyone, but there are some contribution income limits that if you are above, you cannot contribute for that year. For 2016:
- $132,000 if single, head of household, or married filing separately
- $194,000 if married filing jointly
- $133,000 if single, head of household, or married filing separately
- $196,000 if married filing jointly
If you’re above those levels of income, odds are that you probably have a retirement plan already and aren’t the right audience for myRA.
Starting a myRA Account & Funding it
To open your account, go to myRA.gov and select the “Sign up” option to start.
Once your account has been created, there are 3 ways that you can fund it:
- From your paycheck (similar to a 401K): You can set up automatic direct deposit with your employer.
- From a checking or savings account: you can set up recurring or one-time contributions.
- From your federal tax refund: when you file taxes, you can direct all or part of your federal tax refund to your myRA account.
You’ll need the following information to get started:
- Social Security number or Individual Tax Identification Number (ITIN)
- Driver’s license, state ID, U.S. passport, or military ID
- Name and birth date of at least one beneficiary
There are some solid benefits to myRA:
- Fees: no account management, maintenance, or other fees.
- Easy to contribute: initial investments could be as low as $25 and contributions that are as low as $5 could be made through automatic payroll deductions.
- Tax-advantaged: you put in after tax dollars (like a Roth IRA). Retirement withdrawals would be tax-free.
- Principal protection: how many who save money let their money just sit there and erode with inflation because they are scared to invest or don’t know how to? With myRA, the funds are automatically invested in the bond funds – there’s no thought involved – and no risk to losing money, as the investment is government backed.
- Portability: your account can travel with you from one employer to another and you can roll it in to a private IRA, at a later time, if you’d like.
- Ability to Withdraw: As with a Roth IRA, contributed funds can be withdrawn at any time (I suppose this could be viewed as a bad thing too). However, withdrawn earnings are subject to the standard Roth IRA early withdrawal taxation and penalty rules.
There are a few things that are limiting, at best, with the myRA:
- Contribution cap: participants could save up to $15,000, or for a maximum of 30 years. If the goal is to make retirement more accessible to everyone, why cap savings at $15k before switching over to a more risky private sector account?
- Limiting Returns: investors who are more comfortable with risk (and if you’re in Gen X or Y, you should fall in to this category) could achieve significantly higher returns by investing in the broader market, versus myRA.
Should you Open a myRA Account?
I’ve grown to be quite a big fan of myRA because it is a retirement account that offers principal protection and no fees. It can basically serve as a complement to Social Security and 401K/IRA funds, all while comfortably outpacing inflation.
I only have one problem – why the heck does the treasury want to limit a good thing to $15k in savings? It’s almost as if they are looking at the account as a bridge to bigger/better savings (which, as a country, we’ve shown we can’t do). What happens when people hit the very low $15k bar? They move over to a Roth where they lose all their money in risky investments and give up on retirement saving altogether?
For those who have no idea how to get started investing, myRA is a well-suited beginning. And even for those who are already investing, having no-fee access to the U.S. G Fund and it’s guaranteed inflation-beating returns is an excellent complement.
It’s a small step in the right direction, but still a very small piece of a much bigger and challenging retirement puzzle.
- What’s your take on the myRA?
- Will you contribute to the plan?
- Would you like to be able to continue contributing to the plan after the $15k lifetime limit?