Can you believe that fewer than 31% of Americans own an IRA? Even fewer—just 19%—actively contribute to one. Consistent with this theme, a 2017 report found that only 5% of Americans take full advantage of this savings tool by contributing more than $5,000 a year to IRAs. Unfortunately, we likely are losing one of the ways to save for retirement: the MyRA. The U.S. Treasury Department recently announced it is ending the Obama administration’s MyRA program, because it wasn’t cost effective.
MyRA was a no-fee way to save for retirement that was designed for people without access to employer-sponsored retirement plans like 401(k)s. It began two years ago for lower-income savers, although it was also open to those with incomes in the six figures. The accounts had no minimum deposits.
The Treasury Department said the demand for, and investment in, the program has been very low. Taxpayers have paid about $70 million to manage the program since 2014.
The next question for those of us with modest means, is how to invest for retirement now that MmyRA is gone? Here are some suggestions:
Don’t cash it in. If you’re in the myRA program, don’t cash your money out of the account. That could mean taxes and an early-withdrawal penalty if you’re under age 59½. Set up a Roth IRA with another provider. In fact, the myRA website has added a feature to walk consumers through the process of selecting a new Roth IRA provider and moving their funds.
Plan your rollover. You want to avoid triggering possible taxes or penalties when you move money from your MyRA to a new account. Therefore, prior to initiating a direct rollover or transfer, open a new Roth IRA with a different provider. Work with the new Roth IRA provider to transfer your myRA balance to your new Roth IRA. If you don’t do a direct transfer, redeposit the full amount into a new Roth IRA within 60 days to avoid taxes and penalties.
Set up automatic savings. Start a direct deposit of a set amount of money into a 401(k) or IRA for every pay period. The money in Roth IRAs grows tax-free. Remember these other basics for Roth IRAs:
- The annual maximum amount you can deposit in 2017 is $5,500 ($6,500 if you're 50+);
- Your contributions can’t exceed your earned income;
- You can withdraw your contributions (not your earnings) at any time, regardless of your age, without paying taxes or a penalty (provided you’ve had the account for five years);
- When you hit 59½, all withdrawals are tax-free (provided you’ve had the account for five years); and
- There are income limits for contributions. For single filers in 2017, the ability to contribute begins to phase out at $118,000 (married filing jointly sees the phase out at $186,000).
There are a lot of reasons why people aren’t saving for retirement, but there are very few valid ones. Some simple saving can help make your goal of peaceful retirement a reality.
Reference: Kiplinger (August 2017) “Say Goodbye to MyRA, Hello to Roth IRA”