The recently introduced MyRA retirement-savings plan is aimed at people who haven’t started saving for retirement. The Treasury Department will begin a pilot program in late 2014 with a few employers and hopes to expand it to more companies.
If your employer offers a MyRA, you’ll be able to open an account with as little as $25 and contribute as little as $5 every payday through payroll deductions (there is no employer match). There are no fees and only one investment choice: The money will earn interest at the same rate as the Government Securities Investment Fund in the federal employees’ Thrift Savings Plan. (The G Fund had annual returns between 1.47 percent and 2.97 percent over the past five years.)
In essence, the MyRA is a starter Roth IRA, and it’s subject to the same rules. When your MyRA balance hits $15,000 — or after 30 years — you must roll it into a regular Roth IRA with a financial institution.
With more than half the civilian labor force lacking a work-based retirement plan, anything that focuses on the issue “is a good proposal,” says Alicia Munnell, director of the Center for Retirement Research at Boston College. But the accounts are not a good long-term solution, says Catherine Censullo, a CPA and personal financial specialist in North White Plains, N.Y., because the low return probably won’t keep up with inflation.
You have plenty of other ways to save for retirement, with more investing choices, even if you don’t have a 401(k) at work. For example, as long as you or your spouse earned some income during the year, you can open an IRA. Several IRA administrators have low investment minimums, charge no annual fees and offer a wide range of mutual funds. You can have your contributions deducted automatically from your bank account every month.
When you choose an investment for your Roth, consider a target-date fund, which gives you a simple way to match your investments to your retirement time frame: It starts out with more money invested in stock funds when retirement is years away and automatically shifts more money to bond funds and cash as you near retirement.
Lower-income savers might also qualify for the Retirement Savers’ tax credit, which can reduce their tax bill by up to $1,000 (or $2,000 for married couples) if they contribute to an IRA (including a MyRA), 401(k) or other retirement-savings plan. To qualify in 2014, your adjusted gross income must be less than $60,000 for married couples filing jointly, $45,000 for heads of household and $30,000 for singles.Kimberly Lankford is a contributing editor to Kiplinger’s Personal Finance magazine. Send your questions and comments to email@example.com. And for more on this and similar money topics, visit Kiplinger.com.