The U.S. Department of the Treasury announced the national launch of myRA (my Retirement Account), a new starter option for those who don’t have access to a retirement savings plan at work. There have been some improvements and tweaks since their initial pilot launch in late 2014.
No monthly or annual fees. No minimum contribution requirement. No minimum balance requirement. Contribute as little as a dollar every paycheck if you like.
Fund via automatic paycheck deduction, automatic bank transfers, or federal tax refund. Automatic paycheck deductions work through your employer’s direct deposit system.
No risk of loss. Your money is backed by the US government, just like US Treasury bonds and FDIC-insured bank accounts. You earn the same interest rate as the Government Securities fund available to Federal employees, known as the G Fund. The good news is that it earns the higher interest of longer-maturity bonds while maintaining zero principal risk like a bank account. Interest is compounded daily.
The G Fund 1-year historical return for 2014 was 2.31%. Taken from TSPFolio, here is the interest rate history. The current annualized rate for November 2015 is 2.125%.
What does “starter account” mean? There are no stocks or other riskier options here. You can roll over your myRA into a private-sector Roth IRA once you’ve either reached the max balance of $15,000 or the max time period of 30 years.
What do you mean it’s a Roth IRA? I mean just that; it is a Roth IRA. The same rules apply:
- Tax-fee and penalty-free withdrawal of contributions at any time, if needed.
- If you make a qualified withdrawal, you’ll pay no taxes on both contributions and earnings.
- For 2015, the contribution limit per person is $5,500 a year, or $6,500 if you are at least 50 years old by the end of the year.
- The income limit is based on modified adjusted gross income (MAGI). The 2015 phase-out range for singles is $116,000 to $131,000. For married filing jointly is $183,000 to $193,000.
Although you may not be the target audience, you can still use myRA if you have a 401k or previous IRAs. Again, myRA is a Roth IRA so you’d have to direct part or all of your annual contribution to this Roth IRA instead. The G Fund is something that I would invest in if it was an option for me, but it is somewhat inconvenient to open another account just for one investment option. For example, if you are 90% stocks and 10% bonds, a $5,000 total contribution would only direct $500 towards a myRA.
Commentary. As I noted when it first came out, myRA is kind of a Frankenstein cobbled together from the parts bin. Existing Roth IRA vehicle. Existing Thrift Savings Plan G Fund. Comerica Bank quietly manages the backend (they’ve done previous work for the Treasury). It’s a bit clunky as you have to tell your employer to direct deposit some of your paycheck into your myRA, which a is basically a Comerica bank savings account and routing number (111925074). If you employer can’t handle split direct deposits, you must contribute via bank transfer or tax refund.
Will this combo convince someone who’s not saving today, to start? My guess is that the popularity will be relatively low. While I personally wouldn’t mind having the G Fund as an investment option, but I don’t know that someone who’s not saving now will be enticed by a 2% interest rate. (Maybe if rates rise.) But hopefully I’m wrong and the opportunity to have a “retirement plan of your own” is enough.
To me, what’s missing is super-easy auto-enrollment (auto opt-in, voluntary opt-out). So the best case scenario is if small businesses without 401(k) plans actively encourage their employees to sign up for myRA, as we’ve seen that automatic deductions are a good trick to save more for retirement. For more information, visit the myRA.gov employer FAQ.