We have gotten several questions about the new retirement accounts introduced by the president during his State of the Union address in 2014. It’s always nice to have another retirement savings option, but for most of our clients, contributing to a traditional Roth IRA account is a better way to reach their savings goals. In the interest of keeping folks informed, I thought I’d pass along the following details on the myRA.
What is a myRA?
The myRA (rhymes with IRA) is a new workplace retirement savings account discussed by President Obama in the State of the Union address, and subsequently authorized by executive order. The administration hopes that employers who currently don’t offer a workplace retirement plan will make myRAs available to their employees.
The myRA is a regular Roth IRA with some special features. Your contributions are made on an after-tax basis, through payroll deduction. Your contributions are tax free when withdrawn, and earnings are also tax free if certain requirements are met. Contributions are invested in newly created government bonds that earn the same variable interest rate that’s available through the government’s Thrift Savings Plan Government Securities Investment Fund (G Fund). (The G Fund earned 2.45% in 2011 and 1.47% in 2012.) Your account principal is fully protected–the value of your account can never go down, and the bonds are backed by the full faith and credit of the U.S. government.
Is it available now?
Do employers have to offer the myRA?
No. The plan is voluntary.
Do employees have to contribute?
No. Unlike the Auto-IRA that has also been proposed by President Obama, employee contributions are totally voluntary.
Who can contribute to a myRA?
According to the White House, myRA accounts are available to “households earning up to $191,000.”
Will employers contribute to the myRA?
How much can I contribute to myRA?
You can open an account with as little as $25, and additional contributions can be as little as $5. You can keep your account if you change jobs. You can contribute up to the annual IRA limit (the limit for 2014 is $5,500), and that would include all of your myRA, traditional IRA and regular Roth IRA contributions. However, once your account reaches $15,000 (or you have had the account for 30 years, whichever comes first) you’re required to transfer the account into a private sector Roth IRA.
When can I access my funds?
According to the Obama administration’s instructions to the Treasury, you can access your funds if you have an emergency. It is not currently clear, however, if the regular Roth IRA distribution rules–which don’t limit withdrawals to emergencies–also apply. (The regular rules allow you to access your funds at any time. Your own contributions are tax free when withdrawn; earnings are tax free if you are at least 59½, or disabled, or a first-time homebuyer, and you also satisfy a five-year holding period.) You can transfer your myRA account balance to a private sector Roth IRA at any time.
Should I invest in a myRA instead of a regular Roth IRA?
The distinguishing features of a myRA are the ability to contribute through payroll deduction, access to the new retirement bond, safety of principal, and the ability to make very small contributions. There are also no fees to establish or maintain the myRA. However, the myRA, with its single investment option and $15,000 cap, lacks the flexibility of a regular Roth IRA. If you can afford the minimum investment to establish an account, a regular Roth IRA is the better option.
If this article has you thinking about your own circumstances, contact my office at email@example.com. I am always happy to meet with people who are working on their retirement plans. Dunncreek Advisors does not provide legal or tax advice, nor is this article intended to do so.