A new type of retirement account, the myRA, is available to savers nationwide beginning November 4. The myRA is guaranteed by the government never to decline in value, and doesn’t have any fees or minimum balance requirements. Here’s why you should consider opening a myRA:
You don’t have a retirement account at work. The myRA is designed for people who don’t have a 401(k) or similar type of retirement account provided by their employer. Workers can contribute to the account by direct deposit through their job, via one-time or recurring contributions from a checking or savings account or by redirecting a portion of their federal tax refund to the account. “It reduces many of the common barriers to saving that are an obstacle for many people to get started,” says Treasury Secretary Jacob Lew. “You don’t have to worry about fees or minimum requirements. You don’t have to worry about losing money.”
No fees. It costs nothing to open a myRA, and there are no annual fees. Savers can contribute up to $5,500 per year, or $6,500 if they are age 50 or older. There is no minimum amount you need to contribute to open a myRA. However, once you hit the maximum myRA balance of $15,000, or the account turns 30 years old, the money will be transferred to a private sector Roth IRA. You can also roll the account balance over to a Roth IRA at any time without penalty. “We would never argue that $15,000 is an adequate amount of retirement savings, but you have to start from here,” Lew says.
No risk of losing money. A new type of Treasury savings bond is the only investment option available within myRAs. This investment is guaranteed by the government never to decline in value. It pays a variable interest rate, which was 2.31 percent in 2014. The average annual return was 3.19 percent during the 10-year period that ended in December 2014.
Easy access to your money. The myRA is a Roth account. This means you don’t get a tax deduction for contributing to the account, but the savings bond interest is not taxed while the money is in the account. You can also withdraw your contributions to the account without triggering taxes or penalties. However, a distribution of the investment earnings before age 59 ½ or from an account that is not at least five years old could trigger taxes and a 10 percent early withdrawal penalty unless certain conditions are met.
You qualify. President Obama directed the Treasury Department to develop the myRA in his 2014 State of the Union address. MyRAs were then tested and refined by a small pilot group of employers. The myRA is now open to all workers who earn an annual income below $131,000 for individuals and $193,000 for couples. You can open an account at myra.gov or by calling 855-406-6972. “Once people start saving there is a good chance they will continue,” Lew says. “So the challenge is to create a habit of saving.”
More from U.S. News
10 Reasons to Save for Retirement in a Roth IRA
How 401(k)s and IRAs Will (and Won’t) Change in 2016
5 Reasons to Open a MyRA originally appeared on usnews.com
