(Bloomberg) -- MyRA, the Obama administration's free, guaranteed-return starter retirement account, launched nationwide on Wednesday.
The government-backed plan is an option for the tens of millions of U.S. workers whose employers don't offer a retirement savings plan. MyRA accounts are open to anyone earning an annual salary of less than $131,000, or $193,00 if they are married and file taxes jointly.
There is no minimum to open an account, as with an IRA, and no fee to open one. Payments can go into the plan automatically, directly from a checking or savings account, or from an employer's payroll system, via direct deposit. Any or all of a federal tax refund can be directed into a MyRA account, which is portable from employer to employer.
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A MyRA (My Retirement Account) won't return nearly what a stock fund is likely to return over time, but workers face no risk of losing their nest egg. MyRAs will invest only in a U.S. Treasury security guaranteed never to lose value. Users can access the money for emergencies. In short, it operates a lot like a 401(k)—albeit without that crucial match that companies may make on employee contributions—but is effectively a Roth IRA with contributions of after-tax money that can be withdrawn, tax-free, in retirement.
The myRA.gov website notes that "interest earned is the same rate as investments in the Government Securities Fund, which earned an average annual return of 3.19% over the ten-year period ending December 2014." Over the past five years, that rate has dropped to a little over 2 percent, said Treasury officials, noting that"the rate is dramatically higher than what people are able to earn on savings accounts."
Savers can put away up to $5,500 a year, and those who are at least 50 by yearend can contribute as much as $6,500. The guaranteed return lasts until they accumulate $15,000 in the plan or have been in MyRA for 30 years, when they will need to move the money into a private sector product such as a Roth. They're also free to move the money out of MyRA and into an outside retirement product at any prior time.
"This has been a long time in coming," said Olivia Mitchell, professor of business economics and public policy at the Wharton School and director of the Pension Research Council. "Yet it's just a first step, and more needs to be done to enhance retirement security for an ever longer-lived population."
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David John, a senior strategic policy adviser at retirement organization AARP's Public Policy Institute, said MyRA is a good tool but not the solution to a “desperate need for additional ways to save for retirement.” MyRA will help many people get started in saving, he said, “but people also need to be able to roll over money into a regular retirement plan, whether it’s a state-sponsored plan or that of an employer." And only about half of U.S. employers, especially in the small business area, offer such a plan.
Treasury Secretary Jack Lew noted in a news conference that "we have been very clear that this is a start, not a finish. People will never build up the retirement savings they need if they don't start."
Treasury officials also noted that "the goal of the program is continuous improvement" and that additional features are planned.
The plan to start MyRA (My Retirement Account) was announced by the administration in the president's State of the Union Address in 2014 and has been in a pilot program with a small group of employers since late last year.
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