Retirement

What Is MyRA

By David Krug David Krug is the CEO & President of Bankovia. He's a lifelong expat who has lived in the Philippines, Mexico, Thailand, and Colombia. When he's not reading about cryptocurrencies, he's researching the latest personal finance software. 6 minute read

Bankrate found that 36% of American people do not have any kind of retirement savings as of August 2014. The situation is even worse for the 25% of Americans who should be saving for retirement but aren’t because they are between the ages of 50 and 64.

The numbers are shocking, but they’re also somewhat comprehensible; it’s easy to put off retirement savings when you’re already trying to make ends meet. It’s simple to find an out, whether it’s “I love my job, so I’ll just keep working till I die” or “As soon as I finish paying off my credit card debt, I’ll establish an account.”

They are extremely myopic, which is a shame. Some people are forced into retirement. More than half of men and more than one-third of women who retired before the Social Security early retirement age of 62 did so owing to a health-related concern, as reported by the National Institute on Aging’s (NIA) Health and Retirement Study. 

A person’s ability to work can be affected by a number of factors, some of which are beyond their control, such as strokes, heart illness, and cognitive decline. Even if you have had good health for the majority of your life, the last five years of your life may be marked by significant, out-of-pocket medical bills that put a strain on your loved ones’ resources. 

Even with Medicare, the typical patient will spend $38,688 in their final five years of life, according to research from the Mount Sinai School of Medicine. Who will foot the bill if you don’t have any retirement savings?

Though, not saving is hindered by a lack of planning alone. Some people find it difficult and expensive to save for retirement. Investments within a Roth IRA may be subject to monthly minimums, initial deposits, commissions, and management fees, despite the fact that IRAs do not mandate such requirements. 

Investment costs can quickly eat away at a new retiree’s meager monthly retirement fund if they make the wrong choice. For this reason, President Obama instituted the myRA (my Retirement Account) program to encourage citizens to begin saving for their golden years. 

There are no account maintenance fees or minimum balance requirements for the investments available in this basic and easy program.

MyRA Basics

Relax if you’ve ever felt overwhelmed by the complexity of retirement planning. MyRA is easy-to-use software. The program’s goal is to encourage people to start saving, even if it’s just $5 every pay period.

Eligibility

You need to be gainfully employed to open a myRA account, and your monthly contributions must come straight from your employer. 

The following are some additional criteria for participation:

  • You must be gainfully employed (gainfully employed)
  • A single person’s annual income cannot be more than $129,000, and a family’s annual income cannot be more than $191,000.

How to Create an Account

The United States Treasury supports individual retirement accounts called myRAs. MyRA accounts are not currently available to self-employed individuals, so any deposits after the initial one will be after-tax. 

For this reason, having an approved direct deposit form on file with your workplace is essential. The U.S. Department of the Treasury has a dedicated webpage where you can join.

The entire process takes no more than 10 minutes and necessitates only the most fundamental pieces of information (name, date of birth, phone number), as well as a Social Security number, a permanent address, an electronic mail address, and a valid photo identification card (such as a driver’s license, state ID, passport, or military ID).

All that’s required to open an account is a commitment to a regular direct deposit of your salary. After that, you’ll need to give your employer a direct deposit approval document, which you can get from the myRA website, to ensure that your elected deposit is sent from your paycheck to your myRA account.

You can access your myRA account in three easy steps:

  • Enroll for the program at the myRA website
  • Commit to a monthly payroll deduction (minimum $5 per month)
  • Provide your employer with a direct deposit form to deduct your monthly deposit from your paycheck

If you have more than one employer and would like to make contributions from each of them, you can do so by submitting a direct deposit form to each of them. 

In addition to the direct deposit form, myRA also includes a letter that can be submitted to your employer to clarify the reason for the direct transfer. MyRA also provides a downloadable version of this letter.

The Fees, Balances, and Guarantees

MyRA accounts stand out from the crowd among retirement savings options since they do not need any minimum deposits or annual fees, and your money is protected from inflation after it has been deposited. 

Since the U.S. Treasury guarantees it, investors may rest assured that they have the full faith and credit of the U.S. government behind them. Your funds are secure, which is especially comforting when you’re just starting out in the investment world.

The Taxation and Contributions

The contribution limits for a myRA are the same as those for a Roth IRA: $5,500 annually or $6,500 for those aged 50 and up. It’s similar to the Roth in that contributions are treated as after-tax, allowing for penalty-free withdrawals, but unlike the Roth, you can’t claim them as a tax deduction. 

Furthermore, earnings within the account are exempt from capital gains and income tax as long as they are not withdrawn before retirement age. For tax and penalty-free withdrawals, you’ll need to wait until you’re 59 1/2 (and have had the account for at least five years).

Interest Rate

All federal employees who invest in a myRA will receive a variable rate of interest that is indexed to the rate paid by the Government Securities Investment Fund of the Thrift Savings Plan. 

Over the past three years, participants in the Thrift Savings Plan have seen an average yearly return of 2.24%, which is slightly greater than the annual rate of inflation. 

When compared to similar guaranteed accounts, this offers substantial savings. In 2015, the average interest rate on a five-year certificate of deposit was 1.82%.

Transfers and Withdrawals

With a myRA, investors are not subject to early withdrawal fees or taxes on their savings. Earnings in the account are subject to income tax and a 10% early withdrawal penalty if the money is removed before the account holder reaches age 59 1/2.

Upon making an early withdrawal of interest from an account that has been open for at least five years, the account holder will not be subject to income tax or a 10% tax penalty as long as they meet the following conditions:

  • Is older than 59 1/2 at the time of the withdrawal
  • Uses up to $10,000 of the monies for a first-time home purchase
  • Pays for qualified education expenses
  • Is disabled
  • Uses monies to pay for medical expenses or health insurance premiums if unemployed

Money in a myRA account can be transferred to another private retirement account at any time. The rollover is free of charge and penalties.

myRA Limitations

The new myRA account program has many positive features, however, it is not suitable for all RAs. 

Before signing up for an account, please think about the following:

  • Possible low income is low. Since inflation is higher than interest rates, it will be difficult to save quickly and significantly for retirement. It may be worthwhile to open an IRA with a better risk-reward benefit if you are able to do so.
  • Low Upper Bound on Accounts. When the account balance reaches $15k, it must be transferred to another private sector IRA. There’s nothing inherently wrong with this (since there is no charge for the rollover), but you might end up saving more money by opening a brand-new IRA with a higher interest rate in the first place.

Who It’s For

An individual’s myRA is ostensibly a retirement investing account; however, it is more accurately viewed as an initial retirement savings account. 

If you open a myRA account and put away up to $15,000 after taxes, you can build up your savings and learn to trust your financial judgment before transferring the money to a standard or Roth IRA.

You may not want to open a myRA if you already have an employer-sponsored retirement plan such as a 401(k), pension, or similar arrangement. 

If you don’t have access to an employer-sponsored retirement plan or are having trouble finding the funds to start an IRA, this may be a good option for you. An individual’s ability to begin saving for retirement is not constrained by the amount they can afford to put aside each paycheck.

Bottom Line

For those who haven’t been able to put aside money for retirement in the past, a myRA might be a terrific first step. With its straightforwardness, it simplifies retirement planning and makes it less daunting to begin putting money down for a secure retirement.

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