myRA – A Good Thing?

In his State of the Union Address, President Obama introduced a new retirement plan called myRA which is shorthand for ‘my retirement account’. The goal is to encourage middle to low income individuals to get in the habit of saving for retirement. The plan rules are styled similar to the rules for the Roth IRA including no tax deduction for contributions; tax deferred earnings; and tax free withdrawals at retirement. Here are the most important details:

  • Low minimum contributions. To encourage people who want to save but need to ‘start small’ the plan allows participants to begin with an initial investment of as little as $25 then add to the account with as little as $5 per paycheck. This will be done through a payroll direct deposit by your employer.
  • No administrative fees. Administrative fees can kill returns for small investors so with this plan there are no fees…meaning if you invest $25, the whole $25 goes into your account and the government (taxpayers) is footing the costs of administering the plan.
  • Investments are 100% guaranteed by the federal government. A lot of people are frightened by the stock market and tend to panic out of the market at just the wrong time. All funds in the myRA account are invested in government savings bonds that are fully guaranteed so you won’t ever lose your money. The obvious downside is that your returns, at least in the current interest rate environment, will be very modest. Estimates for returns for this year are in the 2% to 3% range.
  • Portable. If you change jobs, you can take your myRA with you. One important aspect of the program is that part-time workers are included. In this job market, a lot of people are working multiple part-time jobs and you are allowed to contribute to your myRA from each of those jobs if you wish. 
  • Access to your money. With a myRA, you always have access to your contributions so if you have an emergency, you can get what you put in without any penalties or tax consequences. However, if you take out your interest earnings before age 59½, it will be treated as income for tax purposes and you may also face a 10% federal ‘early withdrawal’ penalty.
  • Tax free access at retirement. After you turn age 59½, all withdrawals (both principal and interest) are tax free…forever!
  • During the initial roll-out later this year, the President intends to target companies who do not offer retirement plans such as a 401-k but the myRA can be used to supplement a 401-k if you meet the eligibility rules. Like a Roth IRA, you’ll be able to contribute up to $5,500 per year and everyone who makes less than $129,000 per year ($191,000 for joint filers) is eligible for a myRA. Once the account reaches $15,000 (or 30 years) it must be rolled over into a regular Roth IRA.

    So is a myRA account a good idea for you?   Americans continue to under-save for retirement so I’m in favor of anything that encourages people to save money. If you fall into the category of ‘I’m not saving any money and I’m afraid of the stock market’, then a myRA is a good choice for you. It lets you start small and get in the habit of saving money through an automated savings plan. For more information visit