In his 2014 State of the Union address President Obama introduced the myRA account and said that the Treasury was taking action to make it available by the end of the year. The goal of the plan is to help millions of Americans save for retirement.
Although the details are still being worked out, the following information has been released about these accounts:
- All workers who have household income below $191,000 may invest in the plans.
- The plan will work like a Roth IRA, where after-tax money is put into the account and the money can be withdrawn in the future with all gains becoming tax-free.
- The only investment option is a fund of U.S. Treasury Securities. Because the securities are backed by the government, a saver will theoretically never lose their principal.
- The White House says the plan will earn the same rate of return as Thrift Savings Plan's Government Securities Investment Fund that it offers to federal workers. That fund earned around 1.5 % in 2012. Its average return between 2003 and 2012 was 3.6%.
- Principal can be withdrawn from the plan at any time penalty free although if interest earned is withdrawn before age 59 ½ it will be taxed.
- Initial investments can be as low as $25 and workers can contribute as little as $5 at a time.
- Individuals will be able to contribute $5,500 per year.
- The maximum that can be saved in the account is $15,000. Once that limit has been reached, the excess money can be rolled over into a private IRA fund.
- Workers can keep the plan even if they switch jobs.
The account is aimed at individuals who have not started saving. Those in high income brackets are ineligible. The rate is actually not that bad when comparing it to other no risk investments such as savings accounts and CDs. The 1.5% 2012 return is far higher than any savings account at the moment, and the money accrues tax free, boosting income even more. The best 5 year CD rates pay between 2-2.5% APY. The money is safe and protected and the principal is liquid, although the interest cannot be withdrawn without penalty.
Those who have never saved before might find this a relatively pain-free way to begin socking away money. From the myRA account, first-time savers can always graduate to private IRAs with more options.
Those under 50 who have access to other investment options should probably invest their money more aggressively in a mutual fund IRA that has the potential for much higher returns.
Those fifty and over who are looking to sock away some safe money until retirement might look at this account. The maximum that can be saved in the plan is $15,000, so it’s not going to significantly change a portfolio, but it’s an easy way to earn a decent tax-free return and keep money liquid.