A New Retirement Account Debuts, But Is It Worthwhile
There’s a new retirement savings account in town.
The “MyRA” (for my IRA), authorized by presidential order, combines the tax benefits of a Roth IRA with investment security. The downside is that returns may pale compared with those of other retirement accounts.
Just like a Roth IRA, contributions are made with after-tax funds, and future payouts may be free of federal income tax. Unlike a Roth, however, you won’t have a plethora of investment options. The MyRA will invest solely in U.S. government savings bonds.
Thus, with this new account, you’re not risking principal but yields will be relatively low. You can keep the account after switching jobs and withdraw funds at any time. However, distributions of earnings before age 59 ½ are taxable; plus, a 10% tax penalty may apply.
As with a Roth IRA, you can currently contribute up to $5,500 a year ($6,500 if age 50 or older). Availability is phased out for upper-income taxpayers. Once your account balance reaches $15,000, you must roll over the funds to a private Roth, in which you will have the usual array of investment choices.
Initially, only employers will offer MyRAs, but it is expected the accounts will be expanded later to individual savers. This new type of retirement plan is targeted mainly at younger workers who don’t have access to plans through their employers. Is it right for you? Consider all of the alternatives.
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