The life and times of the myRA program, and what to do now
Andy Collado | Financial Coach | The Financial Clinic
In late July, the U.S. Department of the Treasury announced their decision to discontinue the 3-year-old myRA program. According to the review conducted by the Treasury, there was “very little demand for the program, and the cost to taxpayers [could not] be justified by the assets in the program.“
The myRA provided a great opportunity for low- to middle- income families to save for retirement. It was a Roth account with no minimum balance requirements, no fees, and no contribution requirements. Unlike traditional IRAs, Roths are funded by post-tax contributions and allow you to withdraw funds contributed without a tax penalty, even before the retirement age of 59 ½, and once you do reach the age of retirement, you are able to withdraw all funds in the Roth and pay no taxes on the earnings. The contributions of myRA accounts were placed into a U.S. Treasury security with a guarantee to never lose dollar value. The myRA was best suited for individuals who had no access to employer based retirement plans, and could not meet the minimum balance requirements or pay fees associated with IRAs at private companies. The maximum balance on the account was $15,000.00, after which the funds would have to be transferred to another institution.
Americans are not saving enough for retirement, and myRA was created to bridge that gap — particularly for low- to moderate-income individuals. Luckily, various options exist as alternatives to myRA. Here are a couple steps to take now that myRA has started its walk into the sunset:
- If you have an existing myRA:
- “Roll over” your account into another Roth IRA account. Be very mindful of the fee structure and any minimum requirements. Many companies now offer fee free accounts with no minimums and that is where you should head. The myRA was very limited in investment options, but your new account should have a much wider variety of instruments to use to achieve your retirement goals.
- Take a distribution. As the funds contributed were post-tax you can technically take the money and use it as you wish. But you will not do that right? You started the myRA because you saw the importance of saving for retirement so let’s keep that sentiment going strong. Even if you have a very small amount in the account, the power of compound interest can have that small amount grow more substantial, especially if you continue contributing up to the annual $5,500.00 max. In addition, if you withdraw earnings from your myRA account and do not reinvest those funds into another Roth IRA (and do not meet the requirements for distribution such as being at least 59 and ½ years of age), you will have to pay taxes on those earnings, with a 10% penalty added to what you owe.
- Getting started with retirement planning:
- If your employer offers a retirement plan, sign up. You can contribute up to $18,000.00 a year and select investments that match your risk profile. Generally the funds are contributed on a pre-tax basis. Also, some companies offer Roth accounts for their employees, funded with post-tax dollars. Most companies will match a portion of your contribution to help speed up your savings. Not taking advantage of an employer match is literally leaving free money on the table!
- If you do not have access to an employer retirement plan, look into Individual Retirement Accounts. There are two types:
- Traditional – pre-tax contributions ($5,500 annual max, $6,500 if over 50), taxed at withdrawal.
- Roth- post-tax contribution ($5,500 annual max, $6,500 if over 50), tax-free withdrawals.
- Individual Retirement Accounts often have minimum contribution requirements to avoid paying fees (and we would always recommend that you avoid financial transaction costs), so these minimum contributions, anywhere from $1000 to $3000, would be a great financial goal to work towards! To save for this goal securely, we would recommend that you open a free online savings account, which have no minimum balance requirements or maintenance fees.
- Whether you are saving retirement, for a minimum contribution, or for a rainy day, remember to set up an automatic transfer of funds from your checking account to your savings account. By making the transfer automatic, you can make sure that you never forget!
Finally, remember that you can always meet with a financial coach who can help you clarify your financial goal, decide upon a target retirement savings amount to aim for, and set up the necessary transactions to start (or continue or increase) your savings.