A new starter savings account proposed nearly a year ago by President Barack Obama is now open for deposits.
MyRA, which stands for my retirement account, is a savings program designed for millions of workers without a retirement plan on the job. Even those with a retirement plan at work, though, can contribute if they meet myRA’s requirements.
Under the federal program, workers right now can contribute only if their employer can transfer part of their paycheck through direct deposit into a myRA. The program’s website says the Treasury Department plans to offer other ways for workers to contribute.
The account is essentially a Roth IRA and follows the same rules. The most that can be contributed annually is $5,500 for those under age 50 and $6,500 for those older. And workers can make a full or partial contribution if their income this year is under $129,000 for singles and $191,000 for joint filers. (For 2015, the income limits are $131,000 for singles and $193,000 for joint filers.)
Money goes into the account after taxes have been paid on the money (meaning no tax deferral as you might have with a 401(k).) Contributions can be withdrawn at any time without penalty. Workers generally must be of retirement age to take any earnings out without paying a 10 percent penalty. There are some exceptions, such as taking a distribution to buy a first home.
Unlike other Roths, though, the myRA has no fees. Money will be invested in a U.S. retirement savings bond that earns the same interest rate as securities held in the Government Securities Investment Fund offered in the federal workers’ savings plan. The average annual return of this fund was 3.39 percent in the 10-year period ending December 2013, according to the Treasury. MyRA balances are protected against any losses.
Also, once an account reaches $15,000 — or has been open for 30 years — the worker must transfer the funds out of the myRA and into a private-sector account. If workers change employers, no problem. Workers can have their new employer direct contributions into the account. (In fact, those who have more than one job can have each employer direct part of their pay into the myRA.) Workers, though, are free to roll their money into a private-sector account even earlier if they want, particularly if they seek potentially higher returns — with more risk — in the stock market.
You can sign up for a myRA, and track your investment, online.
The federal program’s launch comes the same month a similar program was approved by the Illinois state legislature. The state program will automatically enroll private-sector workers into a retirement savings plan if they don’t already have one and don’t opt out. The Illinois Secure Choice Savings Program, supported by AARP, is expected to be signed by the governor.
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