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The myRa is an IRA designed for low to mid-income retirement savers who may not have a retirement account available through their employer, such as a 401(k). This account works much like a Roth IRA and is meant to be used as a “stepping stone” to funding an individual’s retirement, not the overall solution.
Am I eligible to contribute?
Individuals who earn less than $129,000 and couples earning less than $191,000 may contribute through their employer (if offered), directly from their checking/savings account or by redirecting a portion of their federal tax refund.
How much can I contribute?
This account works much like a Roth IRA in which the contribution limit is $5,500 per year and $6,500 for those over 50. Being that this account is designed for low to mid-income level individuals, it allows for minimum contributions of only a few dollars a month.
What can I invest in?
An important factor of the myRA is the guarantee to not lose money. This is because only one investment option is available - Treasury Bonds backed by the US Government. These Treasury Bonds offer the same variable interest rate as the Thrift Savings Plan Government Securities Investment Fund. The YTD return of the TSP, as of the writing of this article, is 1.99% and the 10 year return is 2.96%.
Are there any applicable penalties or fees?
The myRA is extremely cost efficient. There are no setup or maintenance fees.
"Much like a Roth IRA you can pull principal at any time. However, earnings withdrawn before 59 ½ are subject to income taxes and a 10% early withdrawal penalty." - A featured quote on DepositAccounts.com
Important to know!
In regards to taxation, a myRA works much like a Roth IRA. After-tax money is contributed, it grows tax-deferred, and after 59 ½ it’s withdrawn tax-free.
It is important to know that once a myRA reaches an account value of $15,000 or has been open for 30 years, it MUST be rolled over into a private sector Roth IRA. Once this $15,000 threshold has been reached, an individual cannot open another myRA. Finally, before this $15,000 threshold, an individual can elect to roll into a Roth IRA at any time.
This account should be used as a “stepping stone” to funding retirement. Because it has a cap of $15,000, and must be rolled over to a Roth IRA at that point, it is clearly not a long term retirement savings vehicle. Furthermore, the only investment option being Treasury Bonds, does not make this a practical long term retirement solution. Considering that the historical Treasury bond returns are in line with historical inflationary rates.
I feel a myRA was designed only to encourage the habit of saving for retirement. With low minimums and no fees it encourages low to mid-income earners to at least start somewhere. My hope is that once an individual starts, they won’t stop, and continues their retirement savings well past the $15,000 threshold.
Raymond James Financial Services, Inc.
The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Investing involves risk and you may incur a profit or loss regardless of strategy selected.