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myRA: What You Need to Know About the New myRA Savings Account

In President Obama’s 2013 State of the Union Address, he unveiled plans for myRA: A new retirement savings account that is supposed to make it simple and affordable for young workers to set aside a few dollars for retirement. How does myRA work? What’s different? And can myRA be used as a safe place for short-term savings, too?


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If you watched President Obama’s State of the Union address a few weeks ago – or paved attention to any of the ensuring press – you may have heard about something called myRA.

No, myRA is not some special healthcare plan for people with Rheumatoid Arthritis. “RA” stands for retirement account, and myRA is a new way to encourage more Americans to start saving for retirement on our own. And yes, Barack’s looking at you, Under-30 crowd.

MyRA is a new type of savings account that makes it easy and risk-free to save for retirement. It takes just $25 to open an account, and your money is invested in the G Fund of the Thrift Savings Plan (TSP), a program for investing in government savings bonds previously only available to federal employees.  The government also offers principal protection (similar to FDIC insurance on your savings account).

This investment paid 1.47 percent in 2012, down from 2.45 percent in 2011. That rate of return isn’t going to make you rich over 40 years, but it still beats the 0.80 percent the best online savings accounts are paying right now. As a result, the myRA may unintentionally become our favorite place to stash an emergency fund.

Here’s what else you need to know about myRA retirement accounts.

1. It’s like a Roth IRA.

The tax treatment of myRA is nothing new. A myRA account follows the same tax treatment as Roth IRAs.

  • You must pay taxes on money you contribute.
  • Your annual contributions are capped at the same level as a Roth IRA ($5,500 in 2015).
  • MyRA is available to any household earning up to $191,000 per year or any individual earning up to $129,000 a year.
  • You can withdraw the money you put in (but not earnings) at any time without paying taxes or penalties.
  1. You don’t have to contribute much.

MyRA is designed to support small automatic contributions (we’re a fan of that). It takes as little as $25 to open an account and you can make deposits that are as low as $5 going forward.

2. It can be opened through work or on your own.

Anyone can open a myRA account, but employers can choose to offer a myRA account to employees so contributions can be deducted from your paycheck. If your boss is generous, he or she might also offer a matching contribution.

Keep in mind that all of this is voluntary for employers. Employer-sponsored myRA accounts will roll-out in late 2014.

Finally, a myRA account is portable, meaning you can roll the balance to a private-sector retirement account at anytime.

3. Did we mention it comes with a government guarantee?

A myRA account offers principal protection; myRA is tied to the same variable interest rate as the Thrift Savings Plan (TFP), which is offered to federal employees. That’s good for your peace-of-mind. The downside, compared to a traditional or Roth IRA, is that you can’t invest in the broader markets which significantly limits your returns.

4. It’s a starter account.

Participants in a myRA account can save up to $15,000 over 30 years. Once your balance reaches $15,000 or 30 years of age, you must rollover the balance to a private Roth IRA account.

If you a) are not concerned about meeting the higher minimum contribution requirements of a Roth IRA and b) aren’t interested in the safety net of principal protection, forget about myRA and simply stick with a Roth IRA.

If, however, you want to get started saving for retirement but don’t have $500 or $1,000 to open an account, myRA is for you.

Alternately, if your want to earn a bit more of a return on your short-term cash than a savings account can offer, consider a MyRA account for your emergency fund — you’ll just have to keep the balance under $15,000 to avoid the mandatory rollover threshold.

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About David Weliver

David Weliver is the founding editor of Money Under 30. He's a cited authority on personal finance and the unique money issues we face during our first two decades as adults. He lives in Maine with his wife and two children.

Comments

  1. Will “married filing separately” affect the myRA like it does the Roth?

    • David Weliver says:

      Good question; the unfortunate answer is — as far as I can tell, so far — we don’t know. Even this Treasury Dept fact sheet is vague about the details. Until we learn otherwise, however, I would assume that it will follow ALL the same tax treatments as a Roth IRA.

  2. Thanks for the article!

    Now that the wife and I have a more fully funded Emergency Fund ($15k), I have been wondering if there is a better return on that, though still be liquid enough for an Emergency Fund. Currently, most of it resides in an Ally Savings acct. I had thought about putting it in the Roth accts, but we’re already maxing out one, and the other is close by.

    (side thought: wouldn’t it be great if you could catch up on Roth contributions? Even though the limit is $5,500, what about all of the years you did not max it out?)

    Here’s our situation: Married, twin infants, 1 fully funded Roth, 1 not (the wife is apart of a pension at work) We keep an extra $1k in 2 checking accts just as a buffer. Do we move the extra $13k in to a myRa for each of us (2 accts) or build it up over time in 1 acct? OR should we consider what we already have in our Roths for extreme emergencies, pay off the 2nd mortgage with the $13k and free up about $400/mo?

  3. A retirement account that pays less in interest than the inflation rate? That’s not a retirement fund I’d want to be invested in.

  4. When will these accounts be available?

    • David Weliver says:

      Can’t say for sure yet. The White House says: “These accounts will be offered through an initial pilot program to employees of employers who choose to participate by the end of 2014.”

  5. So this allows savings in addition to the current IRA limits???

    David, am I reading this correctly? Using a MyRA would be a back door to higher contributions to your IRA since you have to roll it over at 15k?

    That sounds like a great way to increase tax-free gains if you’re willing to wait through 3 years of contributions (assuming your don’t make too much $$ — darn those income limits).

  6. David Weliver says:

    Aaron, I haven’t been able to find anything that specifies whether one could contribute to both a myRA and a Roth IRA (or traditional, deductible IRA). We’ll have to wait and see, but I doubt very much they’ll allow that. myRA is designed to be an approachable way for low-income savers to get started putting something away for retirement, not an additional option for people who are already maxing out IRAs, 401ks, etc.