MyRA

DEFINITION of 'MyRA'

A new tax-advantaged retirement account introduced by President Barack Obama in January 2014 as a way for lower-income workers to save for retirement. Workers can open an account with as little as $25 and contribute as little as $5 per month, and employers will deduct their employees' contributions automatically from their paychecks. The maximum balance for a MyRA is $15,000.

BREAKING DOWN 'MyRA'

Because many employers do not offer retirement plans and because traditional and Roth IRAs have account-opening minimums and minimum additional deposit requirements that lower-income workers often can’t meet, President Obama introduced MyRA to give workers who weren’t served by the existing retirement savings plans an easier way to start saving.

MyRA is similar to a Roth IRA in that workers make contributions with post-tax dollars, but contributions grow tax-free and distributions are not taxable. Once the MyRA’s balance exceeds $15,000, the worker must roll it over to a private-sector Roth IRA. By the time the account has reached that size, it will have already met the account-opening minimum for a Roth IRA.

The only way to contribute to a MyRA is through a worker’s employer, and employers don’t have to offer this option. Employers who do offer it will forward employees’ contributions to a plan administrator, who will invest the contributions in Treasury bonds, which are considered safe but have historically low returns that don’t always exceed inflation rates. However, the government guarantees the principal in these investments, so workers should never lose their invested principal. The accounts will have no fees.

 

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