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A new retirement account, myRA, has launched. It's designed as an entry point to retirement savings, like a couch-to-5K training program is for runners. It's not meant to change a new investor's life immediately but to encourage new habits that could be transformative. The account offers an easy to get people to start saving for retirement in hopes they'll continue after they've accumulated a few thousand dollars and no more than $15,000.
Getting started saving for retirement is not supercomplicated, whether you're using a myRA, a self-directed IRA, or investment advisor. But the process can be intimidating. In fact, the Federal Reserve Board has reported that 31% of non-retirees don't have any retirement savings. In addition, over 50% of those with self-directed retirement accounts (where the retirement saver chooses the investments) were either not confident or only slightly confident in making investment decisions.
The myRA is designed to take away the intimidation of investing by eliminating the need for making investment decisions.
All money is invested in a U.S. Treasury savings bond so none of the investment principal is at risk. There are no investment fees, account maintenance fees, or sales charges, so all the principal is invested.
The bond pays interest at the same rate of the Government Securities Investment Fund (or G Fund), which is offered to government employees. This amount is fairly low (2.31% in 2014; 3.19% over the past 10 years). So there is a risk that the investment return may not keep pace with inflation. But account owners don't have to worry about losing money.
There is no minimum for the initial investment and subsequent investments.
Setting up a myRA is pretty easy. Go to the myRA.gov website sponsored by The United States Department of the Treasury and respond the prompts on the enrollment page (click on the “Sign up today” button).
I tested the set-up and discovered that I needed the following information to get started:
- name, date of birth, phone number, marital status and email address
- Social Security number
- information from a government-issued identification card such as my driver’s license number, U.S. passport number or military identification number
- current address and mailing address
- citizenship status
- name, birthdate, and Social Security number of my primary beneficiary, and info on any secondary beneficiaries
After setting up the account, I specified how I'd fund the myRA. There are three ways to put money in the account:
- set up a direct deposit from my paycheck to the myRA if my employer pays me via direct deposit
- transfer money to the myRA from my checking or savings account
- direct all or part of my federal tax refund to the myRA
With the payroll deduction, I'll most likely need to set up recurring contributions. With the tax refund, I could make a one-time contribution (though I could contribute every year if I met income guidelines). With the checking and savings accounts, I might make one-time or recurring contributions.
The only warning I'll make is for high earners: I could possibly fund an account that I couldn't maintain because my earnings disqualified me from putting money in the account for a certain year. Note that the contribution rules are the same as the Roth IRA because myRA is a form of a Roth IRA.
Generally, though, this account is for workers who make much less than Roth thresholds. The myRA is designed for lower income earners and those who don't have a retirement plan at work. However, anyone who has never had a myRA before may participate.
myRA = public-sector Roth IRA
I've read that the myRA follows similar rules as the Roth IRA. That's because it is a Roth IRA. However, there's now a distinction between a myRA (what I am now calling a public-sector Roth IRA) and a private-sector Roth IRA. Further, the myRA has unique features that distinguish it from a private-sector account.
As tax laws regarding Roth IRAs change, expect to see modifications to the myRA. For example, if annual contribution limits are increased for the Roth IRA, then the myRA limits should increase also.
I can maintain the myRA for 30 years or until my balance reaches $15,000, whichever comes first. When I reach these milestones, I must transfer funds to a private-sector Roth IRA. This process involves
- opening a brokerage account or investment advisory account with a private-sector provider
- using the money accumulated to buy investments such as stocks, mutual funds, ETFs, corporate bonds and/or government bonds
For example, I could open an account with a brokerage firm such as Schwab, Fidelity, TradeKing, or Vanguard; or start an account with a robo-advisor such as Betterment or WealthFront. Then, I could choose investments such as Vanguard funds or a pre-designed portfolio.
I don't have to wait until I have $15,000. I could move money out of the account into a private-sector one much sooner. But note that retirement savers can have just one myRA in a lifetime so be ready to invest privately before making this move.
The myRA offers an easy way to get started saving for retirement. While building a starter retirement balance, a new retirement saver may investigate ways to invest before moving money to a private-sector, self-directed account.
Do you plan on opening a myRA? Would you recommend this account to your friends, family members, or coworkers?