A new type of retirement savings account is now available – myRA (my Retirement Account). A myRA could be the perfect way for you to start putting some money aside for your golden years if your employer doesn’t provide retirement benefits. This is an interesting option because myRA is backed by the U.S. Treasury, which makes it safe and affordable.
Technically, myRA is a type of Roth IRA. This option is designed for a large number of Americans who currently don’t have access to a 401(k) through their employer. A myRA is an interesting alternative to a regular Roth IRA because there are no fees and no minimum contributions.
What are the Advantages of Opening a myRA?
A myRA offers several benefits:
- There are no fees. While most Roth IRAs carry monthly fees, every penny you put into your myRA will go towards your savings.
- You can withdraw the money you contributed at any time. This is perfect if you want to start saving, but can’t afford to have your money tied up. There are no penalties or tax implications for withdrawing the funds that you contributed. However, if you’re under age 59½, the accumulated interest can only be withdrawn tax-free in certain circumstances.
- You can keep your myRA even if you change jobs. You can change jobs or be unemployed for a while and still keep your account.
- You choose how much you contribute to your myRA and there are no minimum deposits to open an account. You can change the amount you contribute to your account and temporarily stop making contributions if you can’t afford to.
- Your money earns interest. Your savings will be invested in U.S. Treasury savings bonds and will typically earn between 2 and 3%. This is a safe investment and there are no risks of losing your money. This rate of interest may be more than you can earn in a CD at your bank, and definitely more than a bank savings account.
- Opening a myRA is very easy to do. You can open an account online as long as you have an ID and a SSN.
- There are different ways to make contributions to your account. You can set up automated deposits from a bank account, ask your employer to send a direct deposit to your myRA for a portion of your paycheck, and even deposit all or a portion of your tax return by simply choosing this option when you file taxes.
Are There Any Downsides to Saving with a Myra?
This option might not be for everyone, and this retirement savings option has received some criticism.
Consider these disadvantages before opening a myRA:
- There is an annual limit for contributions. If you’re under 50, you can contribute up to $5,500. If you’re over 50, you can contribute up to $6,500.
- All the money you save will be invested in U.S. Treasury savings bonds. This is a safe investment, but putting all your money into one vehicle doesn’t allow you to create a diversified portfolio.
- The returns are quite low. The interest rate is currently between 2 and 3%, and there’s a possibility that it will become lower in the future. So the return you can expect from a myRA will barely keep you ahead of inflation.
- You can only save up to $15,000 with a myRA. This retirement account is mainly a starter account or an account you might want in addition to your regular savings.
Is a MyRA Right For You?
A myRA could be right for you because there are no fees, it is very easy to open, and there’s no need to manage your investments. This is a good way to start saving for retirement since you can save as quickly or as slowly as you can afford to and there are no risks of losing your money.
However, your money isn’t going to earn enough interest for you to retire comfortably. Your savings will barely keep up with inflation. These characteristics, along with the $15,000 limit, mean you’ll need to look for another way to save up for retirement as well.
A myRA can benefit you if there are no other options offered through your employer, if you cannot afford the fees of a Roth IRA, or don’t have enough money to meet the minimum deposit for an IRA.
How to Get Started with a MyRA
For further details, answers to any questions you may have, or to enroll, go to: https://myra.gov or talk with your employer about setting up automatic paycheck withdrawals to your myRA.
Get the Most Out of Your MyRA
- Open your myRA and save $15,000 as quickly as you can. Set up automatic deposits so you never miss the money. Even if your contributions are small at first, that’s okay. This will get you into the habit of saving.
- Take advantage of this time to learn about Roth IRAs and creating a diversified portfolio.
- When you have the $15,000, roll your myRA over into a private sector Roth IRA of your choosing.
- Within your new Roth IRA, you can re-invest some of your money in U.S. treasury bonds and in other safe investments that won’t lose their value.
- Invest the rest of your money in stocks and other products with higher risks and higher potential returns. Higher returns will make a huge difference over time.
In the end, a myRA is right for you if you want a free and flexible way to start saving for retirement. This is the perfect alternative for anyone who doesn’t have access to a 401(k) and who cannot afford a regular Roth IRA.
However, it’s important to keep in mind that a myRA doesn’t allow you to save up enough money or to generate enough income to support yourself once you retire.
Think of a myRA as a stepping stone that will help you get started. Take advantage of this opportunity to start saving and educate yourself so you know all about Roth IRAs by the time you’re ready to roll over your myRA.