MyRA and the American Dream
What can an employee do when his or her employer offers no retirement plan? For wealthier, knowledgeable investors, a personal financial advisor or a Vanguard mutual fund usually fits the bill. However, part-time, non-traditional, retail, food-service, and self-employed workers are unlikely to possess enough financial assets to meet financial minimums. Employees in these categories may benefit from the U.S. government’s retirement plan Roth IRA option – the my Retirement Account or “myRA.”
Individuals can open a myRA account with no minimum contribution, no start-up costs, and no maintenance fees. Post-tax dollars are used to contribute, but earnings grow and remain tax free. The investment in a myRA is backed by the United States Treasury and the account carries no risk of losing money. The myRA follows Roth IRA contribution rules, so savers must have taxable compensation to be eligible to contribute and generally must earn an annual income of less than $131,000 for individuals and $193,000 for married couples filing jointly. The account must be transferred to a private sector Roth IRA when the account balance reaches $15,000 or after 30 years of participation.
If a distribution is “qualified,” any earnings in the Roth IRA are not taxable when they are distributed. Qualified means:
made 5 years after first contribution
after the owner is age 59½
for a qualified first-time home purchase
after the owner is disabled
to a beneficiary after the owner’s death or disability
As in all risk-return tradeoffs, the safety of the myRA reduces the return, so investors won’t be able to tap into the possibility of earning large gains. Since myRA participants are likely to be saving less, the fact that they receive a lower return for low risk will prevent them from having as much as they might need at retirement. However, the safety of the investment and the habit of savings makes the myRA a positive move.
Why is myRA important? According to the National Institute on Retirement Security in about 45% of the households in the United States have no retirement account assets. Many other household have some retirement savings but not nearly enough. These low levels of savings put the American dream of a comfortable, happy retirement at risk. The myRA is one way to move toward fixing this problem.
Sources
“The my Retirement Account.” https://myra.gov/about/.
“The Retirement Savings Crisis: Is It Worse Than We Think?” National Institute on Retirement Security. N.d.http://www.nirsonline.org/index.php?option=com_content&task=view&id=768&Itemid=48.
By Kathryn Hauer - writing for the Starks Boot Camp™ Review for the CFP® Exam|CFP® Exam Information – MyRA – Government Roth IRA at http://starksbootcamp.com/myra/
