Last week the Treasury Department formally launched new retirement-savings accounts geared towards workers who don’t have access to traditional retirement accounts, such as 401(k)s or 403(b)s.
The retirement-savings vehicle is called “myRA” and officials said the goal of the program is to teach more workers the importance and the ease of saving for retirement. “When people start saving, we know they’ll continue,” Treasury Secretary Jacob Lew in a statement. “Unfortunately, millions of American workers don’t have a way to save for retirement at work.”
The new accounts are structured much like Roth IRAs, where account holders contribute money after income taxes are paid. Investment gains and withdrawals are tax free after that. Employees can fund the account from their paycheck, from their bank account or from their federal tax refund.
One significant caveat, however, is that the accounts feature just one investment option, a Treasury bond with a variable interest-rate return. The interest rate changes every month. In the 10 years ending last December, the investment earned nearly 3.2% annually on average. In comparison, the S&P 500, including dividends, returned nearly 7.7% a year over the same period.
Businesses don’t run the accounts, and the accounts are portable, allowing workers to move their savings when they change employers. Furthermore, participation in the program is voluntary. It is open to workers who make less than $131,000 a year or $193,000 for workers who are married and filing their taxes jointly. Individuals can enroll directly in the program through the website myRA.gov.
The accounts have no minimum balances or fees and individuals can save up to $5,500 per year or $6,500 per year for individuals who will be 50 years or older by year-end. The accounts can grow to a maximum of $15,000, after which the myRA must be rolled over into a private-sector Roth IRA.
To learn more about investing in IRAs, be sure to read this informative AAII articles:
- How Americans Are Managing Their IRAs
- The Cost of Postponing IRA Contributions Until April
- Converting to a Roth IRA Can Minimize RMDs
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