MyRA to Your Retirement Rescue

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photo credit: Unsplash/Andrea Enriquez Cousino

Why myRA is a Great Option for Long-Term Savings

If you already are contributing to a 401(k) at work — especially if your employer matches your contributions — then your retirement savings are on the right track. You invest in the stock market through the 401(k), and sleep easier knowing you have something stocked away for your future self. But what if you don’t have a 401(k)?

What is the myRA?

MyRA (myRA.gov) is a retirement account that you can open on your own. It is not attached to an employer, and you can keep the account where it is even if you change jobs or you are self-employed. This makes myRA one of the best retirement plans for young people and for people who change jobs a lot.

Many independent retirement account options (such as IRAs and Roth IRAs) require minimum investments to open accounts, charge high administrative fees, or have huge penalties for withdrawing funds early. This is why the government created myRA.

You Can’t Lose Money

While it is technically a type of Roth IRA, the myRA invests in a U.S. Treasury retirement savings bond, which the government guarantees will not lose any value. This is both positive and negative. The good news? You only can gain money. The bad news? You might not earn as much as if you invested in something riskier.

Many experts quote the stock market as offering 6 to 8 percent returns when you invest long term (20 years or longer). The fund the myRA invests in provided 2.31 percent returns in 2014, and 3.19 percent interest over the previous 10-year period. Although with myRA you are avoiding any risk of loss, there also may be an opportunity cost of not investing in something higher-earning but riskier.

Limits for Big Savers

There is no minimum initial investment for a myRA, and contributions can be as small or as large as you want — up to a certain annual limit. You can contribute up to $5,500 every year as long as your earned income is less than $116,000. Adults over 50 can contribute $6,500 annually.

In total, you can save up to $15,000 in your myRA; then you must transfer it to a Roth IRA. The idea is that once you reach the $15,000 cap, you will be used to saving and you will be comfortable enough with investing to move to an IRA. You can keep money in your myRA for up to 30 years.

No Penalties for Withdrawals from a myRA

Hit a rough spot? No problem. You can withdraw money you contributed to your myRA without any penalties. Beware though that taking money out of your myRA will slow down your savings growth, and you will have to pay taxes on any interest that your contributions earned. If you withdraw the money within five years of opening your myRA account you can avoid paying taxes for one of these reasons:

  • You are over the age of 59 1/2.
  • You are buying your first house, and you’re taking out up to $10,000.
  • You become disabled.
  • You die or become disabled and leave the money to your beneficiaries.

If you wait until after you’re 59 1/2, you don’t have to pay any taxes on your myRA account’s earnings — even if you have rolled your money over to a Roth IRA. That means when you retire, you won’t be worrying about the tax man.

How Do You Sign Up for myRA?

Go to myRA.gov and read up on the details. The best way to keep up with your savings goals is to have your contributions automatically transferred from your paycheck before it even hits your bank. Or you can have automatic transfers from your checking or savings accounts, or even from your tax return.

As always, we’ve got your back. — The OYO Team

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