How to Save for Retirement with a MyRA

Is the MyRA a Smart Way to Save for Retirement?

The journey to retirement begins with a simple step. Ascent Xmedia/Getty Images

The myRA or “my retirement account” is a relatively new addition to the growing list of potential saving and investment options for retirement. First introduced by President Barack Obama and made available in 2015 through the United States Department of Treasury, myRA’s were designed to encourage more Americans to begin saving for retirement.

MyRA provides another alternative for workers without access to a retirement plan at work.

It is estimated that just over half of all employees work for a company that offers an employer-sponsored retirement plan.  The 2015 Retirement Confidence Survey (RCS) from the Employee Benefit Research Institute found that only 67 percent of workers report that they or their spouse have saved any money for retirement.  

The myRA was designed to provide a simple and safe alternative to help people begin saving so they may bridge the retirement preparedness gap. Contributions are made with after-tax dollars and aren’t taxed while earnings also have the ability to grow tax-free. There are no account minimums and you can contribute any amount you choose.

Account owners maintain complete control over their funds at all times and have the ability to set up automatic contributions or use a federal tax refund when filing a tax return to fund an account. If you switch jobs the account stays with you.

Another element of control can be found in the fact that account owners may withdraw original contributions out of their account at any time without tax and penalty.

How the myRA Investment Features Work

The myRA is considered a safe, conservative investment option and is backed by the full faith and credit of the U.S. Treasury.

Interest earned is at the same rate as investments in the Government Securities Fund, which earned 2.31% in 2014 and an average annual return of 3.19% over the ten-year period ending December 2014. This is the same variable interest rate that federal employees have access to in their retirement accounts (see Thrift Savings Plans).

Similarities to a Roth IRA

The myRA accounts is essentially a Roth IRA with no start-up costs or fees. You can contribute up to $5,500 a year ($6,500 individuals age 50 or older at the end of the year) and withdraw the sum of those contributions anytime for any reason without tax or penalty. This differs from traditional IRAs and other retirement accounts that generally penalize you for withdrawals before age 59 1/2. Just be aware that if you withdraw any of the interest, they may be subject to taxes and a 10% penalty if you’re under age 59 1/2. Contributions are limited based on income and you cannot participate if you have $131,000 or more in AGI if single and $193,000 or more if married filing jointly.

The biggest benefit of a Roth IRA is that anything you don’t withdraw from your account will grow to eventually be tax-free. If you want to invest in something more aggressive for retirement, you will have the option of rolling the myRA over to a Roth IRA at any time.

  In fact, once you’ve had the account for 30 years or the balance reaches $15,000, you will have to roll it into a Roth IRA.

Eligible for Retirement Savers Credit

For tax purposes, contributions are not tax deductible but you may be able to take a tax credit called the Retirement Savers’ Credit for your savings if you meet certain eligibility requirements. For 2015, if your earnings are below $30,500 if you are single or $61,000 if you are married filing jointly, you may be eligible to claim a Saver’s Tax Credit for your myRA contributions. There are other eligibility requirements and the amount of the tax credit varies depending on your earnings and your contributions.

Type of Retirement Savers Suitable for the myRA

The myRA isn’t for every saver or investor. First and foremost, it is designed to be a first step to get the retirement planning process started.

If you do not have access to a retirement plan through an employer and do not know where to get started with saving for retirement this is a good place to start. The myRA is easily accessible making it an ideal account for conservative individuals who are just looking to get started with saving for retirement at an entry level point.

However, it should be noted that younger workers with a long-term time horizon until retirement would likely benefit from a more growth-oriented asset allocation mix when investing for retirement. For those individuals with higher risk tolerance and financial knowledge, some low-cost alternatives to invest for retirement include no-load mutual funds available through companies such as Vanguard, T. Rowe Price, Charles Schwab, and Fidelity. Additionally, online investing platforms such as Wealthfront and Betterment offer low minimum ETF portfolios for a below industry average AUM fee.

How to get started with a myRA

You can get started by visiting MyRA.gov or by calling 855-406-6972. The myRA enrollment site is operated by Comerica Bank, a financial agent of the U.S. Treasury Department. To enroll, you will need the following forms of identification:

  • Social Security number
  • Driver's license, state ID, U.S. passport or military ID
  • Name and birth date of at least one beneficiary