Will myRA work for you?


Sometimes a good idea isn't enough.

Actually, sometimes an amazing idea isn't enough. You still have to execute. And the timing must be right.

The creators of Six Degrees could tell you about great ideas. While Mark Zuckerberg was still in elementary school, they built the Internet's first social network. It was popular, too, drawing millions of members.

Yet the promise of that idea was never realized. Six Degrees is a footnote today, rather than a billion dollar tech titan.

It's not enough to have the idea - you have to get the details right.

Which brings us to myRA.

Who is myRA?

The myRA (short for "My Retirement Account) program is new retirement account offered by the U.S. Treasury. The idea behind myRA is simple: It's billed as a no-cost, no-fee option mainly aimed at people who don't use an employer-based plan.

The myRA is treated just like a traditional Roth IRA. You can contribute up to $5,500 per year ($6,500 if you're over 50). The money is invested in a special U.S. Treasury bond.

Sounds easy, right? Not so fast. There are a few restrictions attached. Your income must be less than $129,000 per year, or $191,000 for couples filing jointly.

The myRA balance is also capped at $15,000. After you reach that figure, your savings is transferred to a standard Roth IRA. This means you should keep your contributions low, in order to keep room for growth before the automatic transfer.

You can withdraw money you contribute to a myRA at any time without tax penalty.

You can't withdraw interest earned without a penalty unless you're 59 and have made your first contribution five years ago.

There are a few exceptions. For example, you can avoid taxes on interest if you use the money to purchase a first home.

Is myRA worth it?

Getting started sounds easy enough. You just visit the myRA website, open an account, and ask your employer to route your contribution to your account. Then you enjoy safe, steady government-backed returns.

Ah, but the devil is in the details.

While the myRA is certainly a safe investment, it isn't going to build wealth quickly. It's also quite inflexible.

Rather than choosing from a menu of investment choices, those who open a myRA are locked into a single government fund. It's a special retirement savings bond offered only to myRA owners.

Here's the big question -- what kind of return will you get?

The U.S Treasury suggests around three-and-a-half percent. That's based on the Government Investment Fund's (part of the Federal Thrift Savings Plan) average annual return from 2003-2013. That's the fund to which myRA is pegged.

Not great, but could be worse, right?

Well, hold on -- the fund has actually performed much more poorly recently. It returned 1.5 percent in 2012 and 1.9 percent in 2013. It hasn't returned three-percent in five years.

Numbers like that are enough to scare anyone.

On the positive side, myRAs are taxpayer-guaranteed, so security is certainly there.

Other questions are also yet to be answered.

What if your employer doesn't feel like bothering with the paperwork?

Will an account capped at $15,000 be large enough to make an impact?

Is this just going to be a huge bureaucratic mess?

The verdict

If you're a low income earner with no retirement plan, the myRA could make sense. You can open it with $25 and contribute just a few dollars per payday. There are zero fees and your money is totally secure. It's a solid starter kit.

Yet if you're anyone else, there's not much to see here. Returns are likely to be marginal. The $15,000 cap is limiting. The lack of flexibility is a negative.

If you're a high-income saver looking for a savings account alternative, then myRAs might make sense in that context. The money can be withdrawn at anytime and offers better returns than your bank. That's potentially a smart angle.

Yet as a whole, the program leaves much to be desired.

The myRA is a sound idea made less attractive by its execution. If the accounts weren't capped so low -- or anchored to Treasury bonds performing near historic lows -- myRA's appeal would be far wider.

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