The government's new retirement savings account is now available across the US
It's called the myRA, which stands for My Retirement Account.
MyRA has been in a pilot program with a select group of employees since 2014, but was launched nationwide on Wednesday, meaning anyone can now participate.It's geared towards people who don't have a lot of savings, and operates similarly to a 401(k), but with some key differences.
- Like a Roth IRA, you contribute after-tax earnings that grow over time and can be withdrawn tax-free for retirement.
- There is no minimum to open a myRA account, and no fees.
- The income cap for people who want to use the account is $131,000 (or $193,000 if you're married and file taxes jointly).
- Even though employers aren't running the account, employees can fund it with automatic payroll deductions. Payments can also be made directly from a checking or savings account.
- Like a Roth IRA, employees can contribute up to $5,500 a year - if you're 50 or older, you can contribute as much as $6,500.
- The account is capped at $15,000, total - at that point, you have to roll the balance over into a regular, private Roth IRA.
- The myRA invests only in a new United States Treasury retirement savings bond, which is guaranteed to never lose money. It won't return nearly what a stock fund might, but you don't risk losing any of your nest egg.
- Interest is earned at the same variable rate as investments in the Government Securities Investment Fund, which earned 2.31% in 2014 and an average of 3.19% over the past 10 years.
- You can withdraw the money tax-free for emergencies at any time without penalty (unlike traditional savings plans).
Not everyone thinks the myRA is a good idea. For instance, certified financial planner Scott Hanson argued on CNBC when the fund was first announced that, "By creating accounts that invest in a government pool, it's yet another way for the Treasury to raise funds without having to sell bonds in the public markets."
Financial adviser and chief contributing editor to FiduciaryNews.com Chris Carosa noted to Business Insider that while the account has its pros - everyone within the income limit now has access to a no-fee retirement plan, and it encourages saving among a wider range of workers - it also has limitations.
"The cons are that the account is capped at $15,000, far short of what is needed to retire in comfort," he tells Business Insider. "Worse, retirement savers are forced to invest in 'risk free' government bonds that are inappropriate investments for long-term retirement savers. The biggest risk to these safe investments is missing out on adequate earnings potential, especially during the most valuable compound interest years."For that reason, Carosa doesn't advise investing in a myRA. "If you don't have access to a 401(k), look for a firm that offers no-fee IRA accounts with no minimum size and that permits you to invest in 'No Transaction Fee' (NTF) mutual funds that have long-term growth investment objectives," he says.