MyRA: Is It for You?

In his State of the Union address, President Obama announced plans to create a new ‘MyRA’ retirement account aimed at helping millions of Americans to start building a retirement nest egg.

The next day he signed a presidential memo directing the Department of Treasury to create the government-backed retirement accounts.

Apple will forego the snide comments about how to pronounce “MyRA” that some “bloggers” have made,  and instead layout the proposal, as the White House has described it.

But first let’s make one point very clear, MyRA is not intended as replacement, or improvement, in the plans available today, namely 401(k), 403(b), traditional IRA and Roth IRA. Instead the MyRA proposal is aimed at the millions of low- and middle-income Americans who don’t have access to employer-sponsored retirement plans. That includes roughly half of all workers and 75% of part-time workers.

Plan Outline:

  • The accounts will launch in a pilot program later this year and will eventually be available to any worker who gets paid through direct deposit.
  • All workers may invest in the accounts, including those who would like to supplement an existing 401(k) plan, as long as their household income falls below $191,000 a year.
  • The account will function as a Roth IRA, which allows savers to invest after-tax dollars and withdraw the money in retirement tax-free.
  • But unlike traditional Roth IRAs, the accounts will solely invest in government savings bonds. They will also be backed by the U.S. government, meaning that savers can never lose their principal investment.
  • Workers will be able to keep the accounts when they switch jobs or contribute to the same account from multiple part-time jobs. They will also be able to withdraw their contributions at any time without penalty.
  •  Initial investments can be as low as $25 and workers can contribute as little as $5 at a time through automatic payroll deductions. Like a traditional Roth account, savers will be allowed to contribute up to $5,500 a year under current limits.
  • Once a participant’s account balance hits $15,000, or the account has been open for 30 years, they will have to roll it over to a private sector Roth IRA, where the money can continue to grow tax-free. Workers will have the option to switch to a Roth IRA at any time.
  • The White House said the accounts will earn the same rate as the Thrift Savings Plan’s Government Securities Investment Fund that it offers to federal workers. That fund earned around 1.5 % in 2012. Continue reading