What Is The MyRA & How Can It Help Me?
There were several points in President Obama’s State of the Union address last week that had me cheering in my living room (“Women deserve equal pay for equal work. … It is time to do away with workplace policies that belong in a ‘Mad Men’ episode.” AMEN!), but none more than his announcement of a new retirement savings program called “myRA.”
Here’s what I know and why I think it is great news for people whose employers don’t offer a 401k plan.
- What is the “myRA” and how is it different from a Roth IRA? MyRA is a workplace savings option that is intended to be an alternate to 401k plans for small businesses or businesses with lower-earning employees to help their employees save for retirement. Since there are income restrictions on who can contribute to a myRA ($129,000 for single people and $191,000 for married people), it is much like a Roth but allows people to save more each year and it is easier to manage than a Roth. Here are the big differences:
- Contribution amounts The biggest difference is the amount of money you can contribute to a myRA: $15,000 each year, versus just $5,500 to a Roth for those under age 50. This is much closer to the amount that Americans with a 401k can sock away each year, so people who don’t have a workplace 401k are no longer restricted to the lower amount you can put in a Roth IRA.
- Investment options Another difference is that unlike most Roth or traditional IRAs, you will only have one investment option for the money you contribute – the Treasury is creating a fund that will be modeled after the same pension plan that federal employees participate in. The upside to this is that once you put money into your account, it will never go down. The downside is that the money may not grow as quickly as it would if you had invested it in a diversified portfolio of stocks and bonds. However, if you’re one of the many people who are putting off opening a retirement account because you haven’t a clue about investing, this is great news!
- Minimum amounts for participation Even the low-cost online investment companies that offer retirement accounts have $500 minimums before you can open an account. MyRAs make it much easier to get started with the initial investment of only $25 and contributions through payroll deductions as low as $5 per paycheck. This takes away the, “I just can’t find the money to save,” excuse and helps reluctant savers get started small.
- Maximum years of contributions MyRA is the first retirement savings vehicle to actually restrict how long people can contribute – once you open your account, you can only put money into it for 30 years, then it must be rolled over to a private sector account. Like the Roth, there won’t be required distributions after attaining a certain age though.
- Participation is still determined by your employer One of the things I’m not crazy to see is that your employer actually has to offer the myRA in order for you to open an account, which is the same roadblock that employees already run into when their employer doesn’t offer a 401k. However, according to the Treasury, offering the myRA to employees will cost close to nothing, so hopefully employers like fast food franchisees and retail outlets who have a large contingent of lower-wage employees and no 401k will consider offering this option to aid their employees with long-term financial security.
Overall, I’m excited to see this new option that makes it easier for Americans to save for their long-term security. This type of account is clearly targeting lower-income workers who may find it difficult to save anything at all by giving them a simple way to save something while taking the guesswork out of investing. The key to this program’s success will be getting employers on-board to offer it to their employees.
What questions do you have about myRA or other retirement savings options? Let me know in the comments and I’ll do my best to answer.