How ‘myRA’ Retirement Accounts Will Work
Written by Hannah Douglas
President Barack Obama said Tuesday in his State of the Union address that he will direct the Treasury Department to create a new type of government-backed account for retirement savings, part of an effort to help millions of Americans better prepare for life after they stop working.
The account, called a “myRA,” is aimed at low- and middle-income workers who do not have access to employer-sponsored retirement plans such as a 401(k). According to the White House, that’s about half of all workers and about 75 percent of part-time workers.
This new type of account, which is expected to become available in late 2014, would be a sort of starter plan for retirement savers. The Treasury Department says the accounts will be free of fees, and account balances will have principal protection and therefore never go down.
Who can open an account?
If you make less than $129,000 a year ($191,00 for couples), you will be able to start an account with as little as a $25 initial deposit and a $5 contribution each payday.
How will the accounts be run?
The accounts will be offered initially through employers who sign on to the pilot program by the end of the year. Your chosen contribution amount will be directly deposited by your employer into your myRA account. Employers will not contribute to or administer accounts.
Your myRA account is portable, meaning you keep it should you ever change jobs. You may at any time move the balance into a private-sector retirement account. Once your myRA account balance reaches $15,000, or the account has been open for 30 years, it will have to be rolled over into a private-sector retirement account.
These investments can supplement any existing individual retirement accounts (IRAs), Roth IRAs and 401(k) retirement accounts you might have.
What will the returns looks like?
These accounts are meant to get Americans to start saving for retirement. The returns aren’t going to be very big.
The accounts will earn the same variable interest rate as the Thrift Savings Plan’s Government Securities Investment Fund—an account that is available to employees of the federal government. In 2012, the fund’s rate of return was 1.47 percent; in the 10 years from 2003 to 2012, it was 3.61 percent.
So, for example, with an average 2 percent interest rate, if you saved $150 each month for three years, you would build up approximately $5,508, including about $108 in interest.
To find out more, contact the Treasury Department’s Bureau of the Fiscal Service by visiting www.treasurydirect.gov/readysavegrow or by calling (800) 553-2663.
Nest egg image via Flickr/TradingAcademy.com