First, it is not the name of your big sister’s friend. It is the newest IRA account out there.
It was announced in 2014 by President Obama in a State of the Union speech. It is designed to give people a chance to start saving for their future.
The myRA is a retirement plan created by the Department of the Treasury. It has no costs, fees, complicated investments or the risk of losing money.
Some of the facts about the myRA are that it is a no cost/fee retirement account that is opened through the Department of the Treasury. The monies are invested in government securities which have earned 2.94% over the last 10 year period. In August of 2016, it will earn 1.50%.
It has the same requirements as a Roth IRA. You can contribute up to $5000 a year and if you are over 50 up to $6500. It is after tax money so there will be no deductions come tax time. The contributions are not tax-deductible and will not be taxed upon withdrawal, just like a Roth IRA.
With the myRA, you can set up automatic contributions in which you can invest as little as $5 a paycheck. This gives you the flexibility to set aside an am0unt that will work with your budget.
You can also make one-time contribution lump sum like a tax return or form a savings account. Also, you can have regular contributions from your payroll via direct deposit or you can do a combination of the two.
During his State of the Union speech, President Obama stated that the myRA would help those in the lower income level to be able to start saving for retirement. He believes that one of the hindrances to starting a retirement plan was some of the high limits that are required by some brokerages to open an account.
This plan is very similar to the Thrift Savings Plan that is available to government employees. The monies are invested in government securities or bonds which have a no risk of default or losing money as they are backed by the full faith of the U.S. government.
Another perk of this plan is the ability to roll it over to a Roth IRA at any time without any fees. Once the account reaches the total amount of $15,000 it has to be rolled into a Roth IRA in the private sector. At this point, you would be able to invest the money in different options with a much greater opportunity for larger growth of your money.
Are there any negatives to the myRA?
Yes, according to several articles that I read there is a fair amount of skepticism about this new plan and how much it can actually help the lower income families save more for their future.
According to an article in CNBC by Scott Hanson, who is a senior advisor at Hanson McClain Advisors. He stated that “this plan which will pay a whooping 1.5% will not entice anyone to save for retirement. He also states that this another way for the Treasury department to fund it’s budget.
He also notes that the “myRA actually has the working poor financing the government’s deficit spending. By creating accounts that invest in a government pool, it’s yet another way for the Treasury to raise funds without to sell bonds in the public market.”
Another article noted that the poor interest rates would not be enough of an incentive to give the working poor the desire to save more money. With their budgets already so tight it just isn’t enough of an incentive to open an account.
Given the current interest rates if you invest $50 a month for 3 years. This would give you a total of $1800 saved. And for that money saved you would earn $67 over those 3 years. This is better than the current rates offered by brick and mortar banks but very paltry by any investing standards.
Government statistics show that nearly a third of people that aren’t already retired don’t have enough money set aside through a pension plan, 401k or other retirement account. More than 40% of people say they don’t have a 401k because their employer doesn’t offer one, and more than 60% of part-time employees don’t have employer-backed retirement accounts.
The myRA is really just a starter account. The myRA is meant to be a stand alone retirement plan. There’s only one investment option–a Treasury Bond that just recently earned 1.5%. That’s more than a typical savings account, but it’s not the kind of investment return experts say that people need to accumulate a good-sized nest egg.
The trade-off is that it is principal-protected(you can’t lose the money you put in) since the money is invested in a government security.
Bottom line is that the myRA is not perfect and frankly, the rate that your money will earn is pretty pathetic. It does offer another option for people to get started saving money for their retirement.
If you work at a place that does not offer any type of retirement plan a myRA would be a better option than a regular old savings account. It does have the flexibility of ease of depsoits, no fees or costs associated with the account and it will earn significantly more interest than saving currently will.
That will do if for this weeks post. Thanks for taking the time to read this and if you think it would be of any benefit to those you know, please share it with them.
Until next time.