Last night President Obama discussed MyRA, which is a plan that would encourage employees to set aside some of their wages in retirement savings accounts. The program would allow people to invest in U.S. Treasury bonds with no risk of losing the money people put in. The principal put in by employees would be guaranteed by the Treasury.
“Safe: The new savings bonds would have its principal guaranteed by the U.S. government, much like a traditional savings bond.
Tax benefits: The MyRA bond would be like a Roth IRA: Your contributions would not be tax-deductible, but your earnings would be free from tax when you withdraw it. As with a Roth, your contributions can be taken out tax-free at any time.
Affordable: Minimum initial investment could be as low as $25, and subsequent investments could be as little as $5, through payroll deduction. Savers can keep the same account when they change jobs.
Rates: Savers will earn interest at the same variable interest rate as the federal employees’ Thrift Savings Plan (TSP) Government Securities Investment Fund. The fund earned 1.74% last year.
Availability: The MyRA would be open to households earning up to $191,000 a year through their employers. Employers won’t incur any cost to offer the MyRAs. You’ll be able to save up to $15,000 a year for up to 30 years before transferring to a private Roth IRA.”
A recent report showed that fewer than half of African American and Latino workers have retirement plans at work.
Nari Rhee of the National Institute on Retirement Security said last month, “To further illustrate the extent of the racial divide, a typical white household near retirement has nearly $30,000 saved in retirement accounts, clearly an insufficient amount. A typical black or Latino household near retirement fares even worse, with zero dedicated retirement savings in a 401(k) or IRA. For working-age households, the average retirement savings is only about $20,000 among blacks and $18,000 for Latinos – a small fraction of the $112,000 average among white households.”
MyRA could be the entry point for many in starting a retirement savings account.