Intended for taxpayers with taxable income, but who lack access to retirement savings plan at work, the myRA program was launched nationwide last month after an initial pilot phase.
The program was developed in response to the finding that millions of Americans lack adequate retirement savings–many of them because their employers do not offer a retirement savings plan at work.
Background
According to a 2015 Federal Reserve Report, 31 percent of non-retired people said they have no retirement savings or pension whatsoever. Additionally, a 2013 report by the National Institute on Retirement Savings found that the average near-retirement household had only $12,000 in retirement savings. Among workers who do not participate in a 401(k) or other defined contribution plan, 42 percent say it’s because their employer does not offer one. Furthermore, among part-time workers, a 2015 BLS Economic Release found that 62 percent don’t have access to a retirement plan at work.
In 2014, the Treasury Department developed the framework for the program, including creating a new Treasury savings bond to serve as the underlying investment for these accounts, as well as designating a financial agent to help Treasury administer the accounts and set up a simple way for savers to fund their accounts through their employers.
In 2015, the Treasury Department worked with a small, diverse group of employers as part of the initial pilot phase of myRA to get feedback and ensure that the user experience is as simple and straightforward as possible.
How it Works
myRA is a government sponsored Roth IRA. There are no fees and it is guaranteed by the government to never lose value. Contributions may be made via one of three ways:
- Paycheck. Set up automatic direct deposit contributions to myRA through an employer.
- Checking or savings account. Savers can fund a myRA account directly by setting up recurring or one-time contributions from a checking or savings account.
- Federal tax refund. At tax time, direct all or a portion of a federal tax refund to myRA.
myRA is designed as a starter retirement account to help bridge the savings gap for many of these workers. It is optimized to appeal to first-time savers, for whom a no-risk, principal-protected investment is more appealing than a higher-risk investment option. As myRA account holders grow their savings, they have the option to transfer to a private-sector Roth IRA with diverse investment options at any time, or transfer to a private-sector Roth IRA once they reach the maximum myRA balance of $15,000.
myRA is a Roth IRA and follows the same eligibility requirements. To participate in myRA, savers (or their spouses, if married filing jointly) must have taxable compensation to be eligible to contribute to a myRA account and be within the Roth IRA income guidelines. The savings bond interest is not taxed while in the account and won’t be taxed at all if you leave it in the account until after age 59 1/2. Savers who earn less than $131,000 for individuals and $193,000 for couples are eligible to contribute.
Savers can contribute to their myRA accounts as little as a few dollars up to $5,500 per year (or $6,500 per year for individuals who will be 50 years of age or older at the end of the year). Savers can also withdraw money they put into their myRA accounts tax-free and without penalty at any time. Roth IRA requirements apply to the tax-free withdrawal of any earnings.
For more information about myRA please call the office.