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Heard About MyRAs? The Buzz is Low

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Jan 25th 2016
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Last November, the MyRA – short for “my Retirement Account” – made its long-awaited nationwide debut. However, despite continued efforts by the federal government to promote this new retirement-savings device, it isn't generating much noise in the private sector.

The MyRA, a brainchild of the Obama administration, was first introduced to the public during the 2014 State of the Union address. President Obama promptly signed an executive order authorizing these accounts, but they were essentially in testing mode until last November. Now, you're free to set up and use a MyRA individually or through an employer.

MyRAs are patterned after the successful and popular Roth IRA. As with a Roth IRA, contributions for 2016 are limited to $5,500, or $6,500 if you're age 50 or older. There's no current tax on the contributions or earnings in your account as you work your way toward retirement. Finally, just like a Roth IRA, qualified distributions paid out to participants after five years are completely exempt from tax.

On the other hand, if you take a nonqualified distribution from a MyRA, the payout is subject to tax, plus a potential 10 percent penalty for withdrawals prior to age 59 1/2.

The Obama administration has touted the MyRA as a way to help lower- and middle-class Americans without other employer-based plans save for retirement. The ability to contribute to such accounts is phased out for upper-income taxpayers at the same levels as Roth IRAs. For 2016, the phase-out begins at $117,000 of modified adjusted gross income (MAGI) for single filers and $184,00 of MAGI for joint filers.

It's easy to set up and manage a MyRA. There's no minimum deposit requirement or fee for opening an account. Payments can go into the MyRA automatically from a checking or savings account or your employer's payroll plan. And you can transfer a federal tax refund directly into the account.

The main difference between a MyRA and a Roth IRA is there's only one investment option. The investment is a US Treasury security that is guaranteed to never lose principal, but will likely produce a lower return than other comparable securities. Over the past five years, it has produced a return of slightly more than 2 percent. However, the safety factor may entice taxpayers scared by the rumblings in the stock market during the first few weeks of 2016.

Finally, be aware that you can't keep a MyRA going forever. Once your account balance reaches the $15,000 mark, participants must roll over the funds to an IRA at a private financial firm. At that time, you can select from the usual menu of investment choices.

Will the MyRA appeal to a significant number of your clients? It remains to be seen.

Click here for more information about MyRAs.

Related article:

New Kid on the Block: The ‘MyRA'

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