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7 Reasons to Use New myRA Accounts

(posted: January 11th, 2016)


You may have heard about the new, government-created myRA retirment savings accounts.

This new option gives the roughly 70 million Americans without access to 401(k)s or other employer-sponsored savings plans a no-fee, no-minimum-balance, non-deductible Roth IRA.

Your myRA money is invested in a super-safe interest-bearing account backed by the U.S. Treasury.

The rate is around 2% - Low for retirement accounts, but higher than any regular savings account return (over the last several years and into the foreseeable future).

When the account balance reaches $15,000 you are required to move it into a "real" IRA or other retirement account, but you can move the money sooner, too, to take advantage of the higher returns often realized with other retirement investments.

Who can open a myRA account?

  • Individuals with taxable compensation and income below $131,000
  • Couples with incomes under $193,000

And...

  • You can contribute up to $5,500 per year
  • Or up to $6,500 if you're over 50

By comparison, other retirement accounts commonly require minimum balances of $1,000 or $2,000.

7 (more) Reasons to Support myRAs

#1: MyRAs give easy access to saving to millions of workers who lack 401(k)-type plans.
More than 70 million American workers have no access to 401(k)-style retirement saving. Simple payroll deduction through their employers, or direct from a personal checking or savings account to a myRA can give these workers access to a method of saving that is currently out of reach. In addition,the myRA accounts belong to the worker and are not associated with the employer. Workers can keep their same account even if they change jobs.

#2: Workers can start saving with as little as $25.
Even though the vehicle for myRAs is a Roth IRA, there is not much else in common between the two accounts. For example, a myRA allows a worker open an account with as little as $25 initially and a $5 per pay period contribution. Most IRAs typically require $1,000 or more in initial contributions.

#3: MyRAs are a good way to get people into the habit of saving.
One of the most common reasons people say they do not save is because they think they cannot save. The truth is, they most likely can, but they have never gotten into the habit. MyRAs are a great way to get people into the habit of saving.

#4: Opening a regular IRA is out of reach for millions of Americans.
Millions of people who can open IRAs simply do not. The high initial investment is one reason, and it can be intimidating, requiring a certain level of financial understanding to set up. Only about 5% of eligible Americans contribute to an IRA regularly.

#5: MyRAs will lead to private IRA participation for small savers.
MyRAs give small savers entry into the IRA space, since they are capped at $15,000, after which the accounts have to be rolled into a private Roth IRA (or a 401(k) if the worker has access to one at some future time). Once in a private IRA, workers will have a range of investment options.

#6: Government savings bonds are a totally reasonalbe way to start saving.
For the uninitiated, investing is overwhelmingly complicated. The myRA gives workers a chance to start simple with a small payroll deduction (or automatic bank account transfer) into principal-preserved government savings bonds. The rate of return is lower than is generally found in IRAs and 401(k)s, but it is more than a standard savings account. Yes, once these savers reach the cap they will have to wade into the waters of investing, but keeping it simple to start encourages action now and gets savers more comfortable with the idea of being investors.

#7: Savers can automate contributions.
The myRA lets you set up recurring or one-time contributions from checking or savings accounts. Automating the savings process is hands-down the best way to make saving a habit.

A myRA could be a good choice for the young workers you know, like those who are just starting out in their careers, or as a way to teach kids with part time and summer jobs about saving. It's also a great way for new entrepreneurs to start saving for retirement.

Visit the Treasury Department's myRA site to learn more and set up an account.

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