Preface: The Obama Administration has developed a new savings tool that may be helpful for your employees. Interested..learn about the myRA here…..

myRA – What is it

A myRA (rhymes with IRA) account is a savings tool initiative from the Obama Administration. The myRA program was announced on January 28, 2014, by President Barack Obama during the 2014 State of the Union Address, quote “Let’s do more to help Americans save for retirement. Today, most workers don’t have a pension. A Social Security check often isn’t enough on its own. And while the stock market has doubled over the last five years, that doesn’t help folks who don’t have 401ks. That’s why, tomorrow, I will direct the Treasury to create a new way for working Americans to start their own retirement savings: MyRA. It’s a new savings bond that encourages folks to build a nest egg. MyRA guarantees a decent return with no risk of losing what you put in.”

After almost a one year pilot program, a myRA is an official savings tools for Americans who haven’t started savings for retirement. The intention of a myRA is to simplify savings for employees who do not have a 401(k) or pension at work. If you’re an employer, who doesn’t provide a 401(k) or pension coverage for your employees, you can encourage your employees to start using this new savings tool today.

How does it work? To setup an account simple login to the myRA webpage. Three options are present for myRA account contributions; i) direct deposit of after-tax dollars from your paycheck, ii) one time deposits from a checking or savings account each year, or, iii) you can channel some of your federal tax refund into the account each year. A $25 investment will open a myRA account and continuing paycheck contributions can be as low as $5. A myRA account won’t generate any fees, has no minimum balance, and principle is guaranteed. So with a myRA you never lose money. What are the disadvantages of a myRA? First the money is invested only in Treasury Funds, so you may only earn 2%+/- on your savings, but that’s still better than most typical savings accounts. Parenthetically, contributions must be from earned income, e.g. salary or wages.

Let’s say an employee contributes $500 to a myRA. They can withdraw the money tax free at any time; but if there’re earnings on the capital withdrawn there is a penalty tax, with some exceptions, e.g. withdraws from the myRA to say buy a house, or pay for education.

A myRA works for individuals with earnings of less than $131,000 or married filing jointly of $193,000. Contribution limits per year are the same as IRA’s – $5,500 or $6,500 if age 50 or older. In fact you can have both a myRA and a Roth IRA account, but your combined contributions cannot exceed the limits. Although you can only save up to $15,000 in a myRa and cannot have the account open for more than 30 years. If you exceed either threshold you must transfer your funds to a Roth IRA.

Summary: While a myRA account won’t pay all bills during retirement, it is a great way to encourage say your employees to begin to develop good habits for saving and investing in their future, and incrementally work toward funding a ROTH IRA.