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myRA: A New Way to Save for Retirement

At his State of the Union address, President Obama announced the myRA initiative: an affordable savings account to help Americans start saving for retirement. This new product will be targeted to Americans who currently lack access to workplace retirement savings plans and the funds will be deducted via payroll, making the process easy for enrollees.

With an initial investment as low as $25 and contributions as low as $5, myRA could be an attractive option for those who may not be able to afford the monthly minimums of many traditional IRAs. It functions like a Roth IRA in that the contributions are not deductible, and when distributions are withdrawn from the account, they are not taxed. The difference with myRA is that there are no restrictions on when you may take the distributions.

The account balance is also protected, like savings bonds, by the US government. Ryan Sullivan, principal with Rehmann Retirement Builders explains, "For people who have invested their money in an IRA but have lost some of their balance, they may be hesitant to continue investing. However, this is a safe way to get used to the investment process again and with low contributions."

The downside to having a protected account balance, however, is the relatively low returns provided by this fund. Savers will earn interest at the same variable interest rate as the federal employees' Thrift Savings Plan (TSP) Government Securities Investment Fund.

"The returns will be much lower than those of a traditional IRA," warned Gerald Wernette, principal with Rehmann Retirement Builders. "However, this is a great introduction (or re-introduction) to the savings process. It'll be low cost, easy to access and efficient."

Your account will transfer with you if you change jobs and contributions can be withdrawn tax-free at any time. Another important fact to note is that once your myRA account balance hits $15,000, or you have hit the maximum savings period of 30 years, it must be transferred to a private sector Roth IRA.

For more information on myRA, please visit the White House page: FACT SHEET: Opportunity for All: Securing a Dignified Retirement for All Americans.

Published in Wealth Management

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