Meet MyRA: The Government's New Retirement Savings Plan

Meet MyRA: The Government's New Retirement Savings Plan

Move over, 401(k)s and IRAs: There’s a new nest-egg savings vehicle in town.

This week, the Obama administration launched MyRA (“my retirement account”), a free program that offers modest returns.

MyRA is designed as a starter savings option for the millions of Americans who don’t have access to an employer-sponsored retirement account (though if you do, you can still sign up for MyRA.) 

It’s open to anyone earning an annual salary of less than $131,000 or, if married and filing jointly, $193,000.

Could it be right for you? Here’s a closer look at how MyRA accounts work.

MyRA Perks ...

No minimum investment. You can open an account with $5, $50, $500 or whatever amount you like. Unlike most retirement accounts, there’s no required minimum investment. The funds can be deposited from a bank account or your employer’s payroll system—and you can even funnel a federal tax refund into MyRA.

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Tax advantages. A MyRA is structured like a Roth IRA, which means you make contributions after paying taxes on the money. That means when you make withdrawals from the fund as a retiree, you won’t owe taxes on those distributions.

Minimum risk. MyRA accounts will be invested only in a U.S. Treasury security that will not lose its value, so you don’t need to worry about losing any of the money you’ve invested.

Portable and automatic. As with a 401(k), you can set up automatic contributions to your MyRA account. But unlike a 401(k), MyRA is not tied to a specific employer, so you don’t need to deal with the hassle of rolling over an account if you change jobs. MyRA goes with you.

MyRA Drawbacks ...

Annual contribution limits. As with a 401(k) or IRA, there are limits to the amount you can contribute to your MyRA. You can sock away up to $5,500 (or $6,500 per year if you’re 50+).

A total contribution limit. MyRA is meant to help people kick-start their retirement savings. Once you’ve racked up a balance of $15,000—or once you’ve had the account for 30 years—you’re required to move the funds into a private-sector account like a Roth IRA. You can also opt to make that transfer sooner.

Minimal returns. MyRA accounts are solely invested in U.S. Treasury securities, and their low risk comes with a low return. In 2014, the rate was 2.31%. (Past performance is not a guarantee of or a prediction of current or future performance.) While that’s higher than the interest you’d earn in a typical bank savings account, it’s lower than the potential returns of investments like equities.

Just the start, indeed. MyRA expands the options for getting going with retirement savings—and the sooner you start, the better, because of the power of compound interest. But don’t stop there! For most people, the contribution limits of MyRA mean this savings vehicle won’t be enough to provide a comfortable retirement cushion.

Ready to give your nest egg a boost? Follow our handy checklist.

LearnVest Planning Services is a registered investment adviser and subsidiary of LearnVest, Inc., that provides financial plans for its clients. Information shown is for illustrative purposes only and is not intended as investment, legal or tax planning advice. Please consult a financial adviser, attorney or tax specialist for advice specific to your financial situation. LearnVest Planning Services and any third parties listed, linked to or otherwise appearing in this message are separate and unaffiliated and are not responsible for each other’s products, services or policies. LearnVest, Inc., is wholly owned by NM Planning, LLC, a subsidiary of The Northwestern Mutual Life Insurance Company.

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