President Obama first announced his administration’s planned myRA retirement accounts — for the roughly 55 million Americans without 401(k)s or other employer-sponsored savings plans — in his 2014 State of the Union address. Starting today, the myRA can finally be yours (or your grown kid’s).
The administration spent the past year “testing out the pipes” as a Treasury official today described the government’s pilot program with 60 employers. “We wanted to make sure it was simple and as user-friendly as possible,” said the official. “We learned it does work.” A USA Today story said that when Norton’s Flowers & Gifts in Ypsilanti, Mich., offered myRAs to its 21 employees during the pilot, six signed up.
How the myRA Works
So here’s how the myRA (rhymes with IRA) works and how you can sign up for one if you want now that the accounts have rolled out nationwide:
The myRA is a no-fee, no-minimum-balance, non-deductible Roth IRA for individuals with taxable compensation and income below $131,000 and couples with incomes under $193,000. You can contribute up to $5,500 per year (up to $6,500 if you’re 50 or older). By comparison, according to the Treasury Department, other retirement accounts commonly require minimum balances of $1,000 or $2,000.
The myRA money is invested in a super-safe interest-bearing account backed by the U.S. Treasury — current rate: a meager 2.125 percent. Someone who invested $150 a month at that rate would have just over $9,500 in five years.
The vast majority of people...understand that it would be a mistake to take out [myRA] savings for something that isn’t a real emergency.
— U.S. Treasury Secretary Jack Lew
MyRA’s Current Return: Just Over 2 Percent
I asked a Treasury official whether that low rate (which is what federal employees earn in the Government Securities Investment Fund in their Thrift Savings Plan) might dissuade people from signing up for myRAs. The response: “That interest rate [in the government employees savings plan] for the past five years has been a little over 2 percent, on average, and that’s dramatically higher than what you’ve been able to earn on the average savings account.”
Another official added: “That interest rate is consistent with the low-risk nature of the myRA.”
The myRA is portable; you can take it from your current employer to your next one. But if the account reaches $15,000, you must then transfer the balance to a Roth IRA at a financial institution, where you can continue investing it.
Who’ll Be Helped Most
The myRA won’t solve the nation’s retirement crisis (a $15,000 nest egg is skimpy), of course, and the Obama administration concedes that. But Treasury Secretary Jack Lew told reporters, including me, this morning that he thinks the account will act as a “starter account” to get non-savers on the right track.
“Unfortunately, millions of workers don’t have a way to save for retirement at work. But one thing we know: when they start, there’s a good chance they’ll continue. The challenge is getting started in the first place,” Lew said.
One group who could find myRAs especially useful: the 15 million self-employed Americans who don’t have employers with 401(k) plans.
A TD Ameritrade survey released today found that 55 percent of the self-employed say they’re behind in saving for retirement and that self-employed boomers with retirement savings targets are, on average, $335,000 short of their target.
Too Easy to Withdraw Cash?
While I think myRAs are a good idea for many people who haven’t started saving for retirement, I do have one concern: The government’s making it awfully easy to pull the money out before retirement.
You can withdraw any money you put in to a myRA tax-free anytime and without owing any tax penalties. (Interest withdrawn might be taxed, and possibly with penalties, depending on when and why you pull the money out.)
Lew didn’t seem overly concerned about the ease of non-retirement withdrawals at his media briefing about the myRA today.
“If people don’t start saving, the question of taking it out or leaving it in never arises,” he said. “The vast majority of people who think about what the myRA means for their longer-term future understand that it would be a mistake to take out savings for something that isn’t a real emergency.”
One of the myRA’s Best Features
I think that one of the best features with the myRA is one the administration just added after the pilot program: The ability for you to set up recurring or one-time contributions from checking or savings accounts.
The two other ways to fund a myRA: by making direct deposit contributions through your employer or by directing all or a portion of your federal tax refund to the account.
How to Set One Up
To set up a myRA on your own, go to the myRA.gov enrollment site operated by Comerica Bank, the financial agent of the Treasury that’s responsible for administering myRA accounts. You’ll need to provide your Social Security number, ID (such as a driver’s license or U.S. passport) and the name and birth date of at least one beneficiary.
Now if only the myRA came with an employer match.