The United States government is opening the door to retirement savings for the millions of Americans who have nothing invested there, but a word of caution if you go inside: There’s not much to see.
The federal government is offering a retirement account – called myRA – that has no fees, no minimum balance, no risk of losing your money and you can open it at any age. That’s the upside.
The downside is there is only one place to invest your money, the return is negligible and there is a $15,000 max limit on your account and that little bit of savings won’t do a lot to ease all the financial obligations you have during retirement.
Still, it’s a starting point for the nearly one out of three American workers who don’t have one when it comes to retirement.
“We know that once people start saving, they’re very likely to continue saving,” Treasury Secretary Jacob Lew said. “The challenge is to get started.”
MyRA Similar To Roth IRA
That hasn’t happened yet for 31 percent of the workforce that, according to the Federal Reserve, has no retirement savings and no pension. They are the primary target of the program, along with part-time workers and those working in companies that don’t offer 401(k) accounts.
If they decide to start saving with a myRA account, they will be signing up for a modified version of the Roth IRA program, which allows workers to save after-tax dollars for retirement. Some of the other provisions to the program include:
- To qualify for an account, individuals must earn less than $131,000. Married couples who file joint returns must make less than $193,000.
- People who enroll in myRA can contribute up to $5,500 a year (for those under 50) and $6,500 a year for those over 50 at the end of the year.
- Money invested and interest earned on myRA accounts can be withdrawn with no penalty by people 59 and a half years or older. Those under 59 and a half must pay taxes on the interest earned.
- Money can be deposited into account from your paycheck or from a savings or checking account. You also can designate all, or a portion, of your tax refund to go into a myRA account. There is no minimum amount that can be deposited and no minimum balance.
Only One Investment Choice
There is, however, a maximum account balance of $15,000. When your account reaches that level, you must move it to a private-sector retirement account like a regular Roth IRA.
The real problem with a myRA account is the lack of choices and slim return on investment.
Every dollar invested in myRA accounts goes into government bonds, called Government Securities Fund. There are no other choices. You’re guaranteed to make some money, but nothing like you would in a typical retirement investment account.
The return on Government Securities Fund for 2014 was 2.3 percent. The average annual yield for the last 10 years has been 3.2 percent, which barely keeps ahead of inflation. Most investments are expected to return eight percent or more over that length of time and there are thousands of choices of where to put your money.
Still, if you’re a low-income wage earner or someone who stayed away from the market because investing overwhelms you, this is a suitable starting point and that is all Lew expects it to be.
“MyRA is a simple, safe and affordable way to get started,” Low said. “It’s a bridge to other retirement savings products where you can continue to invest and grow your savings.”