In the President’s State of the Union address this past January, he said that he would direct the U.S. Department of Treasury to create a new type of retirement savings vehicle, the MyRA. Contributions to this account would be after tax. Subsequent earnings and distributions would be tax free. The investments held in this account are to be guaranteed by the U.S. government and cannot be lost. These accounts would earn interest at the same variable interest rate as the federal employees’ Thrift Savings Plan Government Securities Investment Fund. Right now that rate is just a little bit more than 1 percent.
The new product is targeted to those who currently lack access to workplace retirement savings plans. Contributions will be voluntary and can be set up through the employer’s payroll deduction system. The account will be portable, meaning the employee can keep the same account if he or she switches jobs. The account balance – once it reaches $15,000 – can be rolled over into a private-sector retirement account at any time.
Contributions can be as little as $5 after an initial $25 contribution. Account holders can withdraw principal from these accounts tax-free at any time and for any reason. After 30 years, the MyRA would have to be rolled over into a Roth IRA.
Eligibility to open a MyRA would be limited to individuals from households making less than $191,000 per year.
In today’s still-struggling economy, it is uncertain whether this program will be successful. So many employees are still living paycheck to paycheck, thus leaving little for savings, no matter how convenient the plan is to set up. Even those who do manage to contribute will often pull the money out of the plan for emergencies.
My goal is to give my clients and the public useful information, explained in plain English, about their finances and taxes. If you have a question you’d like me to answer in a future article, please let me know.
Randy McIntyre is a Certified Public Accountant and a partner in McIntyre, Paradis, Wood & Company, CPAs. He has worked in public accounting since 1977, in Wilmington since 1992. His firm is built on a history of service, technical expertise, and innovative to provide the expertise of larger firms with a personal, one-on-one approach. To learn more about McIntyre, Paradis, Wood & Company, see www.mpwcpas.com. He can be reached at [email protected] or 910-793-1181.
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