MyRA: How the new IRA works

MyRA – My Retirement Account – is a new retirement savings account for Americans looking for an easy, safe way to start a retirement savings plan.

The accounts can be started for as little as $25, with $5 or more contributed each payday.

Initially set to be offered through employers, myRAs will have no fees, will never decrease in value, and will be backed by the “full faith and credit of the United States.”

They will earn interest at the same variable rate as the Government Securities Investment Fund in the Thrift Savings Plan for federal employees.

If you listened to the State of the Union address in January, you heard President Obama unveil the new retirement savings plan.

MyRA is designed to serve people whose employers do not provide access to a retirement plan. The best estimate is that about half of all workers and 75 percent of all part-time workers are in this category.

The myRA will use after-tax dollars, like a Roth IRA, and withdrawals under most circumstances will not be taxed. While it is funded by paycheck deductions, savers will be able to keep their accounts when they change jobs.

MyRAs will be available for any individuals whose annual income is less than $129,000 a year, or couples with income of less than $191,000.

Although the program can begin without legislative approval, employers will not be required to participate. Congressional approval is required to force employers who do not have retirement accounts to set up payroll withholding procedures for myRA.

The myRA program has a $15,000 limit. After reaching that mark – or after 30 years – savers will have to roll over their account to a private Roth IRA. The Treasury will finalize rollover procedures when it launches the program later this year.

Even if you qualify for myRA, you may wish to consider a Roth IRA as an alternative. Both Roth IRAs and myRAs are expected to have the same income limits on contributions.

If you decide to open a Roth IRA, you should shop for a custodian that charges no fees. You will not be subject to the savings limits, and you will not have to wait for your employer to agree to participate.