The U.S. Department of the Treasury has decided to discontinue the myRA program. While existing accounts can remain open and will accept new contributions until further notice, new myRAs cannot be opened and accounts with zero balances as of Sept. 15, 2017 might be subject to automatic closure beginning on Sept. 18. Here’s how to move your money out of a myRA in a way that minimizes taxes and fees.
[See: 10 Reasons to Save for Retirement in a Roth IRA.]
Continue to avoid taxes. MyRAs are a tax-preferred account. Account owners don’t have to pay taxes on the investment gains while the money is in the account. Withdrawals taken after age 59 1/2 from accounts at least five years old are tax-free. You can continue to enjoy the tax-free investment growth your myRA provides by transferring your account balance to a Roth IRA. “When you hit 70 1/2 you are not required to take distributions from your Roth IRA,” says Jennifer Failla, a certified financial planner for Strada Wealth Management in Austin, Texas. So, the money in a Roth IRA can continue to grow indefinitely and you don’t have to worry about a big tax bill in retirement.
If you need access to your Roth IRA savings before age 59 1/2, you can withdraw the money you contributed to the account without triggering income taxes. However, income tax and a 10 percent early withdrawal penalty could be due on investment earnings that are withdrawn early. You might be able to avoid the early withdrawal penalty if you use the distribution for a specific purpose, such as college costs, large medical bills, health insurance after a layoff or a first home purchase.
Look for a low-cost Roth IRA. It’s a good idea to shop around before settling on an IRA provider. If you have a small myRA balance, find out if the Roth IRA provider requires a minimum opening deposit or minimum account balance. Pay particular attention to fees when selecting an account, and look for a plan with no account maintenance fees. “If moving money, individuals need to look at the cost of an account, the annual IRA account fee, and keep that low,” says John Pelletier, director of the Center for Financial Literacy at Champlain College. “Look to move the money to a low-cost option with small account minimums allowed.” In addition to the account fees, pay attention to the costs of the individual funds you plan to select. Also, look for services you would like to use including apps, online chat, customer support or branches near your home you can visit in person.
[See: 9 Ways to Avoid 401(k) Fees and Penalties.]
Consider the investment options. MyRAs have only one investment option, a U.S. Treasury retirement savings bond that is guaranteed by the government never to decline in value, so there’s no risk of losing money. Roth IRAs have a much wider selection of investments, which provides the possibility of larger investment gains, but you can also lose money if you choose poorly. “There now is a high probability that you’re going to have to understand the basics about investing money,” says Ted Beck, president and CEO of the National Endowment for Financial Education. “Take some time to learn about asset allocation and diversification and think about how you will invest your money.”
Initiate a trustee-to-trustee transfer. The simplest way to move your money to a Roth IRA is to initiate a trustee-to-trustee transfer, which means the money will be directly transferred from your MyRA to the new Roth IRA provider. You will need to contact your new financial institution to request this transaction. No taxes are withheld on trustee-to-trustee transfers, and there is no federal limit on how many transfers you can initiate. You may also need to notify your employer to cancel any direct deposits you set up to your myRA. MyRAs can only be directly rolled over to a Roth IRA, not a traditional IRA or a workplace retirement account.
[See: How to Pay Less Tax on Retirement Account Withdrawals.]
Avoid cashing out your myRA. You can close out a myRA by having the account balance paid directly to you. However, 10 percent of your investment earnings could be withheld for income tax. You then have 60 days to put the full account balance, including the withheld amount, in a Roth IRA before it is considered a withdrawal. Early myRA withdrawals are subject to income tax on the investment earnings, and if you are under age 59 1/2 an early-withdrawal penalty may additionally be applied. You can only make one personal rollover from one IRA to another in a 12-month period.
You probably opened a myRA with the intention of beginning to build a nest egg for retirement. Don’t stop saving for the future because the program is ending. “Don’t let this barrier disrupt your momentum,” Beck says. “Be proactive and figure out what you are going to do to keep moving forward.”
Emily Brandon is the author of “Pensionless: The 10-Step Solution for a Stress-Free Retirement.”
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5 Tips for Rolling Over Your MyRA originally appeared on usnews.com
