Today is the first day that myRA—the government-backed retirement account first announced in President Obama’s 2014 State of the Union address – is available nationwide after being in a limited pilot program since last December.
What is myRA?
Well, myRA is a new way to encourage more Americans—especially those without access to a 401(k) via their employer, which is roughly half of all private sector workers—to start saving for retirement on their 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, which is similar to FDIC insurance on your savings account.
This investment paid 2.31 percent in 2014, up from 1.89 percent in 2013, and 1.47 percent in 2012, but down slightly from 2.45 percent in 2011. (Back in the go-go ’80s, however, the G Fund returned 9 percent!) This year, the rate has hovered just above 2 percent. That rate of return isn’t going to make you rich over 40 years, but it’s still almost double the 1.1 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 2016).
- MyRA is available to any household earning up to $193,000 per year or any individual earning up to $131,000 a year.
- You can withdraw the money you put in (but not earnings) at any time without paying taxes or penalties.
- 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. Check with your HR department to see if your employer participates. (And, if not, you can just set it up on your own.)
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 are a) not concerned about meeting the higher minimum contribution requirements of a Roth IRA and b) not interested in the safety net of principal protection, then 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.
Editor’s note: This article was originally published in February 2014. It has been thoroughly updated for relevance and accuracy before republication.