President Obama unveiled a new retirement savings account, the MyRA, in his 2014 State of the Union address to Congress. Similar to the 401(k) and Individual Retirement Account (IRA), Obama said the MyRA will provide "a new way for working Americans to start their own retirement savings."
MyRA a Positive Alternative to Workers With No Other Option
For workers with no employer-sponsored retirement plan, such as a 401(k), and with very little money or knowledge to start their own investment accounts, the MyRA option can be a good start. Here are some of the key features of the MyRA:
- Workers can have part of their pay deducted for deposit into an account invested in U.S. government bonds.
- For tax purposes, it would be treated the same as a Roth IRA (tax-free earnings but not tax-deductible contributions).
- Available to people with annual household income up to $191,000 whose employers choose to participate.
- Initial investments can be as low as $25 and payroll contributions as low as $5.
- The plans are set up through the US Treasury Department.
- Maximum balance of $15,000, after which money would have to be rolled over into a private- sector Roth IRA.
The key benefit to the MyRA appears to be the accessibility. Most mutual funds have minimum initial deposits of more than $1,000, which is not affordable for many Americans. Also, the investment in U.S. Treasury Bonds may not be the ideal long-term investment but it is arguably more appropriate for beginning investors than leaving them at the whims of the market risk associated with stocks, which can be detrimental to a beginner's psyche, to say the least.
One of the most difficult steps in the financial planning process is just getting started and this new MyRA plan appears to be just that--a start.