who chose to listen to or watch President Obama’s State of the Union Speech
last month, you may recall his mentioning of the new “myRA” retirement savings
program. We thought it might be helpful
to expound on what this program is, and how it relates to the array of other
retirement savings options you already have--including, of course, traditional
and Roth IRAs, 401(k) and/or 403(b) plans, etc. While many of you will not meet
the eligibility requirements for this new program, for those that do, you may
find that myRA may not be your optimal solution as you assess the myriad
tax-deferred vehicles available. We hope
this article helps you to evaluate whether you (or someone you are close to)
should consider this instead of, or in conjunction with, other retirement
up our own 401(k), Pauley Financial has partnered with a number of our clients
to ensure they are optimizing their 401(k) opportunity as appropriate. As part of the upcoming tax preparation
meetings, we strive to help all of our clients think through their retirement
savings options, including Simplified Employee Pensions (SEPs), Savings
Incentive Match Plan for Employees (SIMPLE) IRAs, and Section 403(b)/401(k)
Plans, to name a few.
“myRA” Quick Reference Bullet Points:
accounts are aimed at workers whose employers do not offer traditional
retirement accounts like 401(k)s.
accounts would function like a Roth IRA and have government backing like a
savings bond. Contributions are taxed
before they go into the account just like the rest of a person's salary, but
the money will come out tax-free.
will be an initial pilot program for companies that agree to enroll by the end
of this year. Workers can invest if they make less than $191,000 a year for
married couples - $129,000 for singles.
Businesses will not administer or run the accounts. They will simply offer them
to their employees if they decide to participate.
will not be a tax penalty if the investments are withdrawn. While this provides
flexibility, it is not a great recipe for building long-term savings.
investments could begin at $25, and subsequent investments could be as low as
$5. The idea is to have investments added through payroll deductions.
can be taken by the employee from one job to the next, and they can be rolled
into an Individual Retirement Account at any time.
accounts would have the same variable interest rate return as the Thrift
Savings Plan Government Securities Investment Fund accounts that federal
employees enroll in.
someone’s account grows to $15,000, the “myRA” must be rolled over into a
private-sector Roth IRA.
above, these new accounts will be offered to workers who currently don't have
access to any kind of retirement program through their employers. Remarkably, this underserved population is actually
about half of all workers, mostly those who work for small companies which have
trouble affording the cost of creating and administering a 401(k) plan. The idea is that a “myRA” would be so easy to
install and implement (employers don't have to administer the invested assets),
and cost so little (virtually nothing), that all of these smaller companies
would immediately want to give their employees this savings option.
So the first
thing to understand is that people who already have a retirement plan at work,
or who earn more than the thresholds, shouldn't give the “myRA” option a second
frankly, should these people want to shift over to this option. “myRA” functions like a Roth IRA, which means
that contributions are taxed before they go into the account just like the rest
of a person's salary, but the money will come out tax-free. However, the “myRA” is not really an
investment account. Any funds that are
contributed to a “myRA” account earns interest from the federal government at
the same rate that federal employees earn through the Thrift Savings Plan
Government Securities Investment Fund--which is another way of saying that the
money will be invested in government bonds.
is the employer match. Many workers who have
a traditional 401(k) account get some of their contributions matched by their
company, which effectively boosts their earnings. “myRA” accounts will get no such match.
Administration clearly understands the difference between saving in a government
bond account and actual investing; there
is a provision that whenever a “myRA” account reaches $15,000, it has to be
rolled into a Roth IRA, where the money can be deployed in stocks, bonds or
anywhere else the account holder chooses.
The program seems to be designed to encourage younger workers to start
saving much earlier than they currently do.
Statistics show that the median retirement account for American workers
age 25-32 is just $12,000, and 37% have less than $5,000.
Posted on Wed, February 26, 2014
by Kimberly Pauley filed under