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New Retirement Fund Option: MyRA

by Miranda Marquit

During his 2014 State of the Union address, President Barack Obama unveiled a plan designed to encourage more people to save for retirement. The new account is called a MyRA, and it’s designed to be a sort of Roth IRA lite. Before you rush to open you account, however, you need to understand what it is, how it works, and whether or not you are eligible to contribute to a MyRA account.

How the MyRA Will Work?

MyRA Retirement AccountThe MyRA follows many of the same rules as a Roth IRA. You can contribute the same amount to a MyRA as you can to an IRA (up to $5,500 a year in 2014). Additionally, you make your contributions with after-tax dollars and the money in your account grows tax-free, so you don’t have to pay taxes on it when you withdraw money from the account later on.

On top of that, you can withdraw your contributions at any time, penalty-free. However, as with the Roth IRA, if you try to withdraw any of your interest earnings prior to reaching age 59 1/2, you will be penalized.

Unlike the Roth IRA, though, you don’t have a choice as to where you will invest the money. The money is kept in what amounts to a savings account. The earnings are pegged to the Thrift Savings Plan Government Securities Investment Fund. On top of that, your principal isn’t at risk with the new MyRA, as it would be with a Roth IRA. Your principal is guaranteed by the US government with the MyRA.

The Thrift Savings Plan Government Securities Investment Fund saw an average annual return of 3.6% between 2003 and 2012 — but only had a  return of 1.5% in 2012. As you might imagine, the returns aren’t going to be huge. But the idea is to encourage savings, in the hope that those who are wary of losing money in Roth IRA or other investment account will be willing to put their money into an account they view as secure. Another bonus to having a MyRA account is that there aren’t administrative fees to worry about.

You can’t keep your money in a MyRA indefinitely, though. After you’ve had the account for 30 years, or if the balance reaches $15,000, you have to roll it over to a regular Roth IRA in the private sector.

Who Can Open a MyRA?

The MyRA is targeted toward those who do not have access to a retirement account through work. This might be due to the fact that their work does not offer retirement account options, or that the workers are part-time, and not eligible for benefits.

To start with, the government is offering the program through employers. They won’t have to administer the plans, or contribute to them. However, the MyRA isn’t going to be limited just to those who don’t have access to a retirement account through work. After the pilot program ends and there is full implementation, anyone who has direct deposit for a paycheck can sign up.

Initial deposits are as low as $25, and it’s possible to have as little as $5 from each paycheck set aside in the myRA account. However, you can only contribute if you make less than $191,000 a year. Even someone who has an account through work, such as a 401(k), can contribute to a MyRA once the initial program is complete. That way, if you want to make extra contributions, and meet the income requirement, you’ll still be able make contributions to the MyRA in addition to contributions to other accounts.

Should You Invest in a MyRA?

This new type of retirement account does have the potential to encourage those who wouldn’t normally save start saving. The account offers a safe place to keep money, and you don’t need a lot to get started. And, while the yield is low, it is still likely to beat most savings accounts.

Over time, though, the MyRA account is unlikely to provide sufficient returns to fund a retirement. It can offer a tax-efficient way to diversify your portfolio if you want to add something similar to cash, but you probably shouldn’t rely on this account to supply all of your retirement needs.


Published or updated February 3, 2014.
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{ 6 comments… read them below or add one }

1 Larry Ludwig @ Investor Junkie

MyRA has to be the dumbest government retirement plan ever. Here are some of the issues off the top of my head:
1. We already have many other existing choices. Why create this one? Roth IRAs are pretty much the same. If you wanted to invest in government bonds, why not just buy them through an IRA instead via ETF? Granted it’s not 100% the same but for short term bond durations close.
2. The previous history of G-bonds (what MyRA is supposedly going to be based upon) haven’t even kept up with the average rate of inflation for the past 30 years.
3. The total limit is $15k. Won’t even cover one year in retirement for most individuals.
4. If this plan is targeting young (who don’t have anything saved) going into bonds is the worst thing you can do. When young you should be mostly into stocks. Lets forget about we are at one of the lowest points in history for real bond returns.
5. IRAs can be setup with a brokerage account who don’t have 401(k)s available. They have low minimums (under $500 in many cases) and can take money out monthly from your bank account.

The problem isn’t we need more options for retirement. The issue individuals need to save less than they earn and do it much more than they are currently doing.

MyRA is all smoke and mirrors.

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2 Ryan Guina

Larry, I tend to agree with you here. I agree with the idea, which is to try and make saving easier for those who don’t currently have access to a retirement account through work. But I think this falls short in many areas. Most people would be better off opening a Roth IRA with a company that offers low cost recurring contributions. MyRA can be set as low as $5 per paycheck. The lowest I have seen most Roth IRAs is around $25. So there is a small difference there. But $25 is a reasonable amount to try and save each pay period ($5 per period only gets up to $260 per year if you are paid weekly; that won’t be enough to defray much in retirement).

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3 Larry Ludwig @ Investor Junkie

If you can’t afford $25 per paycheck you have bigger issues to tend to than worrying about retirement.

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4 Ryan Guina

Agreed. Most people would be better off opening a standard Roth IRA with a company that offers better investment options. Most target date funds would be a better starting point than government bonds.

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5 Matt Becker

I take some issue with this comment: “If this plan is targeting young (who don’t have anything saved) going into bonds is the worst thing you can do.”

Is going into bonds really the worst thing you can do? What about not saving? I agree with you that in an ideal world everyone would be opening up IRAs with their investment company of choice and investing their money in an ideal set of index funds or ETFs with an appropriate asset allocation for their age, risk tolerance, etc. But we don’t live in that world. Many people aren’t doing anything, and while I agree that the myRA is much less innovative than a program like this could be, if it helps people who otherwise aren’t saving to save, then it’s a win. We’ll see if it actually does that, but if so all of the other arguments against it are pretty irrelevant.

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6 Roger @ The Chicago Financial Planner

I agree with Larry and Matt. If the President really wanted to do this right why not open the funds in the excellent, low cost TSP saving plan for government workers under the same terms? That way young savers would have a full array of investment choices available in a low cost starter plan. Overall this new initiative is a non-starter to me.

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