What is the New myRA All About?

The new myRA which stands for My Retirement Account is similar to the Roth IRA in many ways.  1. Participants can contribute after-tax funds up to an annual threshold which is equivalent to a Roth IRA ($5,500; $6,500 for age 50 and older). 2. Contributions grow without any current tax.  3. “Qualified” distributions are tax free if it is in existence at least five years. 4. The myRA is exempt from the rules requiring lifetime distributions after age 70 1/2   5. The MAGI phase-out range for 2015 myRA contributions is again the same as the Roth which eliminates this option for upper-income taxpayers ($116,000 to $131,000 single filers; $183,000 to $193,000 joint filers).

Targeted toward Americas who either don’t have access to an employer-sponsored retirement plan or lack options to save for retirement, the initial myRA deposit can be as little as $25 with subsequent payroll deductions of $5 or more per pay period.  myRAs may be offered through employers or private financial institutions.  Employers can help employees start saving for retirement by introducing them to myRA as a new retirement savings option. myRA costs nothing for employers to participate; they do not administer employee myRA accounts, contribute to them, or match employee contributions. Each payday, employers simply facilitate a payroll deduction from the employee’s paycheck to the designatedmyRA account.

Unlike a Roth IRA, there is only one investment option:  a U.S. Treasury bond offering the same variable interest-rate return as the one offered to federal employees.  It is backed by the U.S. Treasury and the account carries no risk of losing money. This may give investors more peace of mind, however, the rate of return could pale when compared to other investments.  Savers can withdraw money they put into their myRA accounts tax-free and without penalty at any time; however, payouts of interest earnings before age 59½ are subject to tax, plus a 10% penalty tax may apply.  And finally, when the account balance reaches $15,000, the investor must roll over the funds to a private-sector Roth IRA.
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