How the MyRA Works and Who Can Benefit

Is the New 'MyRA' a Good Savings Plan?

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Is the MyRA a good choice for you?. Getty Images

The MyRA (as in "my retirement account") was made available to investors and savers in late 2015. While not the best retirement savings vehicle for everyone, there are people who can benefit from the MyRA.

President Obama unveiled this new retirement savings account in his 2014 State of the Union address to Congress. Similar to the 401(k) and Individual Retirement Account (IRA), Obama said the MyRA will provide "a new way for working Americans to start their own retirement savings."

MyRA a Positive Alternative to Workers With No Other Savings Option

For workers with no employer-sponsored retirement plan, such as a 401(k), and with very little money or knowledge to start their own investment accounts, the MyRA option can be a good start. Here are some of the key features of the MyRA:

  • Workers can have part of their pay deducted for deposit into an account invested in U.S. government bonds.
  • For tax purposes, it would be treated the same as a Roth IRA (tax-free earnings but not tax-deductible contributions).
  • Available to people with annual household income up to $191,000 whose employers choose to participate.
  • Initial investments can be as low as $25 and payroll contributions as low as $5.
  • The plans are set up through the US Treasury Department.
  • Maximum balance of $15,000, after which money would have to be rolled over into a private- sector Roth IRA.

The key benefit to the MyRA appears to be the accessibility.

Although there are a few companies offering mutual funds for just $100 initial investment, most mutual funds have minimum initial deposits of more than $1,000, which is not affordable for many Americans. And although the investment in U.S. Treasury Bonds will not produce attractive long-term returns, they can keep up with inflation.

This makes for a better option than the average bank account, which typically pays zero interest or just slightly higher than that.

From a behavioral perspective, the MyRA may be a good way to get started investing. One of the most difficult steps in the financial planning process is just getting started and this new MyRA plan appears to be just that--a start.

Perhaps the best use of the MyRA is to begin the retirement savings process and, when the account balance is at least $3,000, where the best mutual funds set their minimums, transfer the MyRA to a Roth IRA to one of the best no-load fund companies like Vanguard, Fidelity, T. Rowe Price, or Charles Schwab.

Disclaimer: The information on this site is provided for discussion purposes only, and should not be misconstrued as tax advice or investment advice. Under no circumstances does this information represent a recommendation to buy or sell securities.