Saving at an early stage is critical towards accumulating enough wealth for retirement. In an effort to emphasize putting funds away for the future, the Obama Administration has rolled out a new retirement savings vehicle today called myRA. Orchestrated by the U.S. Department of Treasury, myRA is tagged as a simple, safe and affordable way for certain individuals to save for retirement.
The new tool is designed for workers who do not have access to employer-sponsored retirement savings plans — usually 401(k)s — or lack other options to save. The myRA is a Roth retirement savings account that requires no minimum balance and has no start-up costs or ongoing fees. The account is available for individuals with taxable compensation and income below $131,000 and couples with incomes under $193,000. There are no minimum contributions requirements so individuals can contribute an amount that best fits their budget.
People can fund their myRA accounts through multiple sources, whether it be from a paycheck, personal bank accounts or from their federal income tax refund. All contributions will be invested in a new U.S. Treasury security, which safely earns a low level of interest. Because the investment is backed by the U.S. Government, the account carries no risk of losing money.
The myRA is a Roth savings account, so all rules and tax advantages of these types of accounts are in full force. Deposits are not tax-deductible, but instead grow tax-deferred and come out tax-free on retirement. Individuals can withdraw contributions at any time without paying tax and penalty. If a distribution is qualified, the earnings in the account upon the distribution are not taxable. On a yearly basis, maximum contribution and income threshold limits are dictated by Roth IRA limits.
MyRA is only the first step to saving for retirment. As such, once the account reaches $15,000 or has been in existence for 30 years, the account must be transferred to a private-sector Roth IRA. The myRA is meant to address a need, but not replace other possible avenues of retirement income sources.
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