What is Obama’s myRA Plan
myRA, a government-backed individual retirement account, has finally rolled out nationwide. Implemented by President Obama, this account aims to remove retirement barriers that keep individuals from saving for their retirement.
Before you begin investing, we’ve compiled a list of things you should know about this account.
About myRA Plan
Participants on this type of plan, don’t need to link to an employer in order to begin saving on their own. Those who are earning less than $131,000 annually are eligible for a myRA plan account and couples with combined earnings below $193,000.
This account has no minimum balance, no risk of losing funds and no fees. Those who don’t have access to a employer-sponsored account, highly benefit from this plan. However, anyone making below a certain income is eligible to participate.
There are two common ways to receive contributions on your plan. You could allow a automatic deduction from your paycheck to go directly via deposit. The other one is to have deductions from your checking and savings account. Also, you have the option to have your tax refund sent to your myRa account.
The good thing about this account is that it stays with you and keeps your name if you change job.
While there are no fees or taxes on what you’ve deposited. You will have to pay taxes on any interest your account earns. Once you withdraw at 59 and a half, you need to start paying this taxes.
There are also limits to what you can save in your account. Under the age of 50? You are able to deposit up to $5,500 annually. For those over the age of 50 looking to contribute, contributions are capped at $6,500. If your account accrues $15,000, you are required to move your funds to a private account, such as a Roth IRA account.
This account have some downsides even though it guarantees not to loose any money. For one thing, this should only be looked at as a way to begin saving for your retirement, and will not provide you with enough funds to retire on during your later years. This is because government bonds grow slowly, with little interest.
Additionally, because it is risk-free, the idea of transferring to a Roth IRA – which requires investment risks, fees and contribution minimums – may be daunting to some and might once again dissuade them for saving from retirement.
The one fatal flaw in this plan is that it doesn’t address the heart of why Americans aren’t saving for their future. Debt, stagnant wages, inflation and increased cost-of-living are the major barriers to saving for retirement. Many Americans lack money after they pay bills, so this plan provides information for beginning savers.
Additionally, for those individuals who are saving for retirement and are neglecting their emergency funds, myRA does little to bolster their saving process.
So while this is a good tool to inform citizens how to begin to plan for retirement. It fails to address core issues surrounding the lack of retirement savings.
All in all, this relatively new idea for the United States marks a step in the right direction. It starts recognizing the vital importance of encouraging retirement savings. For the financially savvy and for those serious about saving for their retirement, speaking to a financial adviser and starting with a Roth IRA account or an individual 40(k) may be your best savings bet.