Update: The myRA Program has been terminated as of September 17, 2018. Any money in a myRA account will be moved to a new Roth IRA account in your name at Retirement Clearinghouse, LLC. (RCH) The myRA had no account or transactions fees however, RCH will wave fees for a 2 year period for a new accounts transfers from the myRA Program.
RCH has had 16 complaints lodged with the Better Business Bureau regarding excessive fees in last 3 years as of 1/5/2019. Read here for BBB complaint details
When President Obama was delivering his State of the Union address, he indicated that the US government was creating a new type of retirement account. It is aptly named myRA. This appears to be a simple mashup of “my” and “IRA”, which could make it appear that you have control over this retirement account. Why the premise behind the myRA retirement account is good, the execution falls short. We do need to find a way to get people to start saving for retirement, but many don’t have enough to start investing in regular IRA accounts. This is why the myRA retirement account was created. Here is a comparison between a myRA account and a Roth IRA.
Initial Investment and Contributions
This is where the myRA retirement account comes out ahead of a Roth IRA. The initial investment for the myRA is only $25. The initial investment for a Roth IRA depends on what brokerage you use. Many are $1,000 to start, but there are some opportunities to start as low as $250.
Ongoing contributions are important and the minimum for the myRA is just $5. Many of the Roth IRA accounts have a minimum of $50 to contribute. If you don’t meet the limit, some providers can introduce fees. Both myRA and Roth IRA accounts can be funded by payroll deduction from your employer.
Only single workers making up to $129,000 per year and couples making up to $191,000 per year are eligible for the myRA retirement account. This mean that many working families are eligible to set it up.
An important part of investing for your retirement is understanding contribution limits. The federal government dictates the maximum amount one can contribute to their retirement account per year. At this time, people investing using a Roth IRA can only contribute up to $5,500 per year, but there is no overall cap.
The myRA retirement account has a set total contribution limit of $15,000. Once you hit this amount, the account balance will have to be rolled into a private-sector retirement account.
No one likes fees and some retirement accounts have a lot of them. The my RA retirement account comes with no fees. There is no fee to maintain the account.
Just as with a Roth IRA, you can withdraw contributions at any time, tax free. If you withdraw your earnings, then you will be taxed and penalties could be involved.
Here is the biggest difference between myRA and Roth IRA accounts. The myRA retirement account only allows you to invest in U.S. treasury notes and bonds, which is the same as the federal Thrift Savings Plan. This limits the potential of earnings. At this time, these bonds are yielding 2.5% annually.
Roth IRA accounts have a wider selection of investment options. You can invest in stocks, bonds, mutual funds, and many other investment vehicles. You can also invest internationally. This account gives you the best option to earn money. If you invest in funds that follow the stock market, then you can earn on average, 8-9% annually.
Readers: Do you have access to an employer sponsored retirement plan? What do you think about the myRA as an option for those who do not have a retirement savings plan?