The Treasury Department’s myRA program is now available to workers nationwide following last week’s announced completion of a successful pilot. MyRA, first announced in President Obama’s 2014 State of the Union address, is essentially a starter retirement savings account for workers who don’t have access to an employer-sponsored retirement plan, such as a defined benefit pension or 401(k) plan.
Employers may offer myRA as a retirement savings option to their employees, with contributions automatically deducted from paychecks. The new twist is that Americans who are not offered the myRA plan at work can now open an account directly and fund it with automatic withdrawals from a checking or savings account. Next year, taxpayers will be able to direct their tax refunds to myRA as well.
The program is well-suited for those who are likely to initially save small amounts, as the accounts have no minimum balance requirement and the federal government pays the administrative costs. Funds contributed to myRA are invested in a special series of Treasury securities, which cannot lose value and provide a guaranteed (albeit small) return.
MyRA is a Roth IRA—contributions are made with after-tax income and interest is accumulated tax-free. Like any other IRA, contributions are capped at $5,500 per year for individuals under 50 and $6,500 for older Americans. Once a myRA account reaches a balance of $15,000, the funds must be rolled over into a private-sector IRA. Like a Roth IRA, contributions made to a myRA account may be withdrawn penalty-free at any time, while interest is subject to both taxes and early withdrawal penalties if taken before age 59 ½,
Due to the low return on myRA accounts (just over 3 percent, on average), they should be viewed as an introduction to (rather than a substitute for) private-sector IRAs and fully qualified defined contribution plans, such as 401(k)s.
By expanding access and allowing savers to accumulate a small balance in a risk-free account, myRA represents an important step forward in cultivating a culture of saving. However, this is just one small piece of the puzzle to America’s complicated savings and retirement security challenges. BPC’s Commission on Retirement Security and Personal Savings will be proposing a comprehensive package of recommendations to address these challenges early next year.