It’s no secret that retirement savings, or lack thereof, is one of the hot-button topics in politics today. The Dime has given its 10 cents (feeling pun-ny today?) about retirement issues from Roth accounts to investment fees. And as we have all seen over the last few years, everyone in the government, from the President to Congress to the Treasury, has ideas about how to solve the problem on a nationwide level.
The myRA (“my retirement account”) was introduced by President Obama during his State of the Union Address in January 2014. He directed the Secretary of the U.S. Department of the Treasury to develop a new retirement savings program to reach new and small-dollar savers; and thus, myRA was born.
The myRA was designed to expand retirement savings to people who work for employers that do not sponsor a retirement plan such as a 401(k), 457(b) or 403(b). (Just a reminder that all PERA members are eligible for the PERAPlus 401(k) and some PERA members are also eligible for the PERAPlus 457(b).) But currently the law does not limit myRA participation to only those people.
The basic idea is individuals establish Roth IRAs with a custodian designated by the U.S. Department of the Treasury. (Remember, Roth IRA contributions are tax-paid.) There are no start-up costs to establish a myRA and there are no fees. Amounts contributed will be invested exclusively in Treasury retirement savings bonds set up for that purpose—and those bonds are available for investment only to myRA participants.
Investing in a retirement savings bond means the principal amounts contributed are protected, so it is a lower risk program (but also because the interest rate is set, it is potentially a lower-reward program as well).
Like a Roth IRA, there are limits to contributions permitted to a myRA, depending on the modified AGI of the taxpayer who wants to contribute. For 2015, the eligibility to contribute depending on filing status is as follows:
- For single, head of household, or married filing separately (if you did not live with spouse at any time during the year), eligibility to contribute begins to phase out at a modified AGI of $116,000, and completely phases out at $131,000. (That is, if you are one of those categories of taxpayer, you will not be able to contribute to a myRA.)
- For married or qualifying widow(er), eligibility begins to phase out at a modified AGI of $183,000, and completely phases out at $193,000.
- For married filing separately (if lived with spouse at any time during the year), eligibility to contribute begins to phase out at a modified AGI of $0, and completely phases out at $10,000.
All myRA participants can continue to contribute for 30 years, or until their contributions reach $15,000.00, whichever comes first. They also have the flexibility to roll the myRA account into the private sector at any time. Like a Roth IRA or Roth retirement plan account, when it comes time to retire, distributions of both the amount contributed to the myRA and the earnings will be tax-free. Also like a Roth IRA or Roth retirement plan account, the caveat of the tax-free treatment is the distribution must be a “qualified” distribution.
As a reminder, a distribution is “qualified” from a Roth IRA if it is made at least 5 years after the owner’s first contribution to the Roth IRA (counting from January 1 of the year of the first contribution), and the distribution is made:
- after the owner is age 59½;
- for a qualified first-time home purchase (up to $10,000 lifetime limit); or
- to a beneficiary after the owner’s death or disability.
If a distribution is not “qualified”, any earnings in the Roth IRA are taxable. In addition, if the owner is under age 59½, a 10% additional income tax on any earnings will also apply unless an exception is available. Exceptions can include payments for:
- qualified higher education expenses;
- health insurance premiums after the owner has received unemployment compensation for 12 consecutive weeks;
- qualified first-time home purchase (up to $10,000 lifetime limit)
MyRA is still new to this world, and as with any new program, will likely evolve to fit its intended purpose. But right now, it may be chance to fill some of your own retirement savings gaps. MyRA has its own website you can check for more information here.
Do you have room in your life for myRA?
This post was written by Megan Westberg, a staff attorney at Colorado PERA. Would you like to write a guest post for The Dime? Email us at firstname.lastname@example.org.