Wallet Hacks

How to save for retirement with a myRA

Updated 7/28/2017: The Treasury Department is shutting down the myRA program.

When Todd Maddox was watching the State of the Union in 2014, he was intrigued when President Obama talked about a new retirement account called a myRA.

He'd already been contributing to a 401(k) and knew Roth IRAs were a good way to save, but never really pulled the trigger on opening one. He figured a government-sponsored Roth IRA would be low fee, secure, and easy to set up without getting up-sold on additional products he didn't want or need. It was easy to set up before moving to a traditional company and it sounded like a good fit for him.

And, in this short time, he's going to hit the account limit sometime next year… which puts him way ahead of the average working adult.

Let me share a scary statistic — Nearly a third of all non-retired adults have no retirement savings.

Not “under $5,000 in savings,” not “under $500 in savings,” — ZERO. 🙁

Let's not get into the business of why that is because there are a million different reasons. And it's not productive.

Let's get into the business of how we can fix this… you don't want to become a statistic and there's a relatively new retirement savings vehicle called the myRA that you should look into.

What is a myRA?

The myRA was created in 2014 and was designed to be the easiest way you could start saving for retirement. It has no minimum contribution, no fees, and only one investment option. You can't get any simpler than that!

The Report on the Economic Well-Being of U.S. Households in 2015, produced by the Federal Reserve each year, reported that 31% of non-retired adults have no retirement savings. It's gets even more dire for those 18 to 29, of which only half have any retirement savings.

It's a problem that needs to be addressed and the myRA removes a ton of decision points from the retirement decision.

The funds in a myRA earn interest at the same rate as investments in the Government Securities Fund, which earned 2.04% in 2015. That's a fund only available through the Thrift Savings Plan, the retirement savings plan only available to Federal employees, and the myRA — too bad because it sounds pretty solid!

The GSF is the safest fund available and is backed by the USG. Good luck trying to find a 100% safe liquid investment that will earn you 2.04% a year (current 10 Year Treasury bonds yield around 2.5% and 5 year bonds yield around 2%). 12-month and 18-month CDs are around 1%.

Here's a brief video explaining more:

If you're familiar with retirement account types, a myRA is technically a Roth IRA for all legal and tax purposes.

How do you contribute to a myRA?

Remember that myRA is a Roth IRA so it is subject to the same contribution limits. You can contribute $5,500 per year or $6,500 if you're over the age of 50. It shares the contribution limits with a Roth IRA so if you contribute $1,000 to a myRA, you'll only be able to contribute $4,500 to a Roth IRA. Income phaseouts apply as well.

The Roth IRA also has an income phaseout that tops out at $194,000 for a married couple and $132,000 for individuals.

There are three ways to contribute to a myRA:

  1. Set up an automatic direct deposit through your employer;
  2. Set up a one-time or recurring transfer from your checking or savings account;
  3. Elect to have a part of your tax refund sent to the account.

Easy right?

Any Gotchas?

One (and a half) – the accounts max out at $15,000. Once you hit that limit, you'll move to a Roth IRA.

Once the account hits $15,000 or the age of 30 (meaning you've had it for 30 years!), you'll move to a Roth IRA.

Finally, it's not a gotcha but it's something to know – this is a Roth IRA so it takes after-tax contributions. You don't get to deduct these contributions from your taxable income like you would with a 401(k) or other tax deferred investment account. The interest earned on the account may be taxable if you withdraw them, subject to the same rules as a Roth IRA.

Who is this for?

If you're a little hesitant to save for retirement because you don't trust the stock market, this is a good option. You get tax free growth in a 100% safe investment vehicle. You can take your money out whenever you want though the interest will be taxed depending on how you use it.

The absolute biggest mistake in saving for retirement isn't what you invest in. It's that people aren't saving whatsoever. If your trust in the stock market is what's holding you back, give this a shot. It's free, safe, and gets you saving — which puts you ahead of 31% of everyone else.