At the annual State of the Union address on Tuesday night, President Obama discussed plans for a new workplace retirement savings account called myRA (rhymes with IRA). Shortly after, the President authorized myRA by executive order.
The program is anticipated to start in 2015. Limited details are available at this time, but here are a few basic items you will need to know about myRA:
1. What is myRA?
The myRA was created in hopes that employers who currently do not offer a workplace retirement plan will make myRAs available to their employees. Think of myRA like a regular Roth IRA with some special features.
Contributions are made on an after-tax basis, through payroll deduction. Contributions are tax free when withdrawn and earnings are also tax free if certain requirements are met. The contributions made are invested in newly created government bonds that earn the same variable interest rate that's available through the government's Thrift Savings Plan Government Securities Investment Fund (G Fund). What have been the recent rates received by these bonds? In 2011, the G Fund earned 2.45% and 1.47% in 2012.
The account principal is fully protected. The value of the account can never go down and the bonds are backed by the full faith and credit of the U.S. government.
2. Do employers have to offer the myRA?
No. The plan is voluntary. For employers to participate in the pilot program, they must sign up by the end of 2014.
3. Who can contribute?
The White House states that myRA accounts are available to "households earning up to $191,000".
4. Will employers contribute to the myRA?
5. How much can someone contribute?
An account can be opened with as little as $25 and additional contributions can be as little as $5. And if you happen to change jobs, you can keep the myRA account.
Remember that details are limited at this time, but you can presumably contribute up to the annual IRA limit (the limit for 2014 is $5,500). Keep in mind, the limit would include all myRA, traditional IRA, and regular Roth IRA contributions. There are many benefits within this program, however, once the account reaches $15,000 - or you have had the account for 30 years (whicever comes first) - you are required to transfer the account into a private sector Roth IRA.
6. When can someone access the myRA funds?
We are not necessarily sure at this moment. According to the Obama administration's instructions to the Treasury, you can access your funds if you have an emergency. You can transfer a myRA account balance to a private sector Roth IRA at any time.
7. Which is better - myRA or Roth IRA?
The benefits of a myRA are its ability to contribute through payroll deduction, access to the new retirement bond, safety of principal, and the ability to make very small contributions. There are also no fees to setup or maintain the myRA. However, the myRA has a single investment option and a $15,000 cap which lacks the flexibility of a regular Roth IRA. If someone can afford the minimal investment to establish an account, a regular Roth IRA may be the better option.
For more information about the new workplace retirement savings account, myRA, please contact your Field Support Representatives (FSR) by phone at 888.543.3776 or via email at firstname.lastname@example.org.