NEW YORK (2/11/14)--A new retirement plan will make it easier than ever for lower-income Americans to save--assuming the savers aren't tempted by penalty-free withdrawals.
It's so easy to withdraw money from myRAs, the new government-backed retirement savings program President Obama has instructed the Treasury to create, that they might work better as an emergency savings fund than as the starter IRA (individual retirement account) for low-income Americans the president intends them to be (Forbes
MyRAs will be available to workers initially through employers who don't already offer employees a traditional retirement savings plan.
Once the myRA program is fully implemented, it will be available to any worker who direct-deposits paychecks with household income less than $191,000, including those who would like to supplement an existing 401(k) (CNN
Some myRA benefits:
Low startup cost. An initial investment can be as low as $25, with ongoing contributions as low as $5. By contrast, many IRAs require an initial deposit of at least $1,000.
No fees, no market risk. The money essentially will be invested in government bonds paying the same variable rate as the retirement account for federal employees. That rate last month was 2.5%.
Tax-free earnings. As with a Roth IRA, you can contribute up to $5,500 a year and grow the account until it reaches $15,000, at which point you will have to roll it into a Roth IRA.
Penalty-free withdrawals. You can take out money you've put into the account at any time, but any earnings you take out before age 59 1/2 will be subject to taxes and a 10% penalty.
Over the long term, the returns on a myRA likely will be lower than if they were invested in a market-based retirement account, but the returns are higher than most saving accounts. So if you're looking for a place to put short-term cash or a risk-free place to stash a few thousand dollars, keep myRAs on your radar.
For related information, read "Everybody's Money Matters: Inherited IRAs, Gifting, and Taxes" and "Tax Tips For Retirees a
nd Those About To Retire" in the Home & Family Finance Resource Center.