Treasury Launches New Retirement Account Nationwide

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Workers nationwide who don’t have a retirement plan on the job will have a new alternative — the myRA.

The U.S. Treasury Department on Wednesday announced the national launch of this no-fees, no-risk Roth IRA. For the past year, the government offered this only through a pilot program.

MyRA alone will not solve the nation’s retirement savings gap, but it will be an important stepping stone for encouraging and creating a nation of savers,” Treasury Secretary Jacob Lew said in a statement.

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MyRA, which stands for “my retirement account,” is a federal solution for the millions of workers who don’t have access to a 401(k) or similar plan from an employer. But this isn’t the only effort to reach those without a retirement plan.  AARP and other advocates support similar retirement accounts on a state level. Illinois became the first state last year to pass legislation that would require certain employers without retirement plans to automatically enroll workers into a state-sponsored Roth account. Many other states also are considering or working on developing similar retirement plans.

MyRA is expected to be a “starter” retirement account for single workers with incomes below $131,000 and married joint tax filers with incomes under $193,000. Workers can contribute to it through automatic payroll deductions or make direct deposits from a checking or savings account. They also can direct all or some of their federal tax refund to be deposited into the account. As with all Roth IRAs, the earnings in the myRA can be withdrawn tax-free in retirement.

Contributions can be as little as a couple of dollars and up to $5,500 per year for workers under age 50 and $6,500 for those older. It is open to anyone who qualifies for a regular Roth IRA, regardless of whether they have a retirement plan through their employer.

The money will be invested in a new type of Treasury Savings Bond, whose principal is guaranteed and earns the same variable rate as the Government Securities Fund offered in the federal employees' retirement plan. According to the Treasury, that fund has earned an average annual return of 3.19 percent in the past decade. MyRA will have no fees, and the accounts will be administered by Comerica Bank.

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Workers can transfer money out of the myRA and into a private-sector account at any time if, say, they want different investment options. Once the account reaches $15,000 or 30 years, investors will be required to move their money into a private account.

David John, a senior strategic policy adviser with the AARP Public Policy Institute, says he likes some of the new features Treasury added to myRA since launching the pilot program. For instance, the ability to contribute to myRA through auto-withdrawals from checking or savings accounts will benefit many younger people who work as consultants or part-timers and aren’t eligible for payroll deduction, he says.

Also, the no-risk investment option, always part of myRA’s design,  is critical to prevent new savers from giving up, John says.

“We have information from the British and others showing that if someone loses money early on in their savings career, they may be discouraged and won’t continue saving,” he says. “The beauty of the myRA, of course, is that it’s 100 percent safe since it’s invested in government bonds.”

He adds, though, that this conservative investment likely won’t generate the kind of returns necessary over the long haul to build a healthy retirement nest egg.

“MyRA is a tool to get people to start saving,” John says. “It’s not a solution.”

Get more details on myRA or enroll at myRA.gov.


 

Photo: Kirbyhamilton/iStock

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