The Trump administration announced July 28 that it is ending myRA retirement accounts, a savings program initiated by the Obama administration for low- and moderate-income workers who don’t have access to 401(k) plans at work. Citing high costs and a low participation rate, the administration noted in a press release that the program, which began in 2014, has cost taxpayers almost $70 million since that time and was expected to cost about $10 million annually going forward. 

How myRA Retirement Accounts Work

MyRA was designed to be a sort of “starter” Roth individual retirement account. Workers could contribute any amount – no matter how small – from their paychecks or voluntarily on their own, including from income tax refunds. Income eligibility was the same as for the Roth IRA, and most Roth rules applied. All contributions were made with after-tax money, and eventually all withdrawals would be tax free.

The only investment option was Treasury savings bonds. While they don’t offer anything near the return of stocks and other investments, these bonds do offer a high degree of security to reluctant investors who fear losing principal. The maximum contribution was the same as for regular IRAs – $5,500 a year ($6,500 for those 50 and older). Once an account reached $15,000 it would have been rolled over to a private-sector Roth IRA.

Phase-Out to Take Several Months

The Treasury Department notified participants by email that they will receive information about moving their myRA savings to a Roth IRA over the next several months. The government said it will communicate frequently with account holders and help them find options in the private sector that offer “no account maintenance fees, no minimum balance and safe investment opportunities.” 

Roughly 30,000 people have saved $34 million in the program since its inception. Of that number about 20,000 accounts have a median balance of $500 and the remaining 10,000 accounts have a zero balance.The myRA website contains a short FAQ page noting the Treasury Department’s plans to help current myRA account holders close or transfer their accounts. 

Moving Your myRA Account to a Roth IRA

While you could technically transfer the funds in your myRA account to any retirement savings vehicle, including a traditional IRA – or even to your checking account (if you don’t mind paying taxes or a penalty on earnings) – the most logical move is to a Roth IRA. Simply open one and ask the account provider to help you execute a direct rollover. This will move your money from your myRA to your new Roth IRA with no fees and penalties and keep it as a retirement account with all the tax benefits. Many brokers will allow you to open your new account online. (For more, see How to Start a Roth IRA and The Basics of Roth IRA Contribution Rules.) 

Fees and Minimums

If your myRA account has a relatively low balance and your ability to contribute is limited, you will want to look for a Roth IRA with a low (or no) minimum balance requirement and low fees. Several highly rated brokers offer Roth IRA accounts that fit this description.

  • Scottrade – This online broker requires no minimum balance, has no annual maintenance fees and offers more than 7,000 no-load mutual funds, 2,500 with no load and transaction fees, and more than 500 index funds with low expenses and minimums.
  • TD Ameritrade – Another highly rated online broker, TD Ameritrade has no minimum balance requirement. It also offers more than 100 commission-free ETFs, many no-transaction-fee mutual funds and several fixed-income products for risk-averse investors.
  • E*TRADE – This online broker also has no minimum balance requirement; it also offers more than 100 commission-free ETFs and features 2,500 transaction-fee–free mutual funds. 
  • Merrill Edge – There is no minimum balance requirement at Merrill Edge, and this online broker offers more than 2,000 no-transaction-fee mutual funds. It does not, however, offer commission-free ETFs. Merrill Edge is well known for its outstanding customer service and offers massive amounts of free research from respected sources. 
  • Fidelity – This online broker requires no minimum balance in its Roth IRA account, although some investments, such as mutual funds, have a minimum investment requirement. There are no account opening fees and no annual maintenance fees, although certain investments may incur fees.
  • Ally Bank – If you desire minimal risk in the form of an FDIC-insured IRA account with no fees, no minimum balance requirement and a decent interest rate on certificates of deposit (CDs), Ally Bank offers 1.35% on 12-month IRA CDs and 2.25% on its five-year IRA CD. 

Keep Up Those Contributions 

There is one significant potential downside to moving from myRA to a private Roth IRA: losing the ability to contribute via automatic paycheck deduction. Although most providers will let you make automatic deposits from your checking account, you must set it all up – and keep it up. Keep in mind that any contributions you have already made through your myRA will count toward your limit for 2017 of $5,500 (or $6,500 if you are 50 or older). 

The Bottom Line

While the demise of myRA takes away one option for retirement saving, there are alternatives, including some that still offer no fees or annual maintenance costs. Regular Roth IRA accounts typically feature several investment options, unlike the myRA, which features only one. It may be prudent to seek advice from a trusted financial expert before moving funds to your new Roth IRA account.

 

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