Sunday, November 8, 2015

The new MyRA

The U.S. Treasury Department has announced a new type of retirement savings program to encourage people to start retirement savings. The "MyRA" program is essentially an entry-level Roth IRA program. Money can be contributed or can be deducted from paychecks and maintained in an account with the Federal government, and the money will earn interest at the rate used for the Government Securities Program, reportedly 2.34% in 2014.

These are the differences between a standard IRA and the new MyRA vehicle:



IRA MyRA
Source Before-tax money After-tax money
Tax deduction Yes No
Limits $5,500 per year $5,500 per year
Withdrawals Subject to income tax Not subject to income tax – tax has already been paid
Early withdrawal 10% penalty before age 59.5 (as to earnings only) No penalty
Invested Any vehicle – CDs, stocks, bonds, mutual funds Governmental account paying interest
Can lose money Yes No

According to the regulation, issued by Treasury in December 2014, the custodian of the accounts will invest the proceeds in a new investment vehicle called "Retirement Savings Bonds" which will not be held by individual savers. Rather, they will be held by custodian. Interestingly, there has been no announcement of who that custodian will be.

When the amount in the account reaches $15,000, or after the individual has participated for 30 years, whichever comes first, eligibility is at an end, and the individual will then be required to move the funds to a Roth IRA sponsored by a bank, credit union, or financial adviser.