myRA (How it works?)

[astvilla]

So how does it work?

It says you can contribute up to 15K which at that point you have to move it to a private Roth IRA.  Can this be used to get around the limits a little?

Any reason or scenario to use this if I already have a Roth IRA w/Vanguard?

[ooeei]

Annual limits are the same as an IRA.  I suspect (but am not sure) that contributions to a MyRA count toward your IRA limit, so there is not a way to game the system. 

The $15,000 limit you are talking about is a limit on the total account size, when you hit a balance of $15,000 in a MyRA you are required to roll it over into something else like a 401k or IRA.

[johnny847]

https://myra.gov/how-it-works/

Q: Why does myRA have an annual contribution limit?
A: myRA is a Roth IRA so it follows Roth IRA rules, which include an annual contribution limit.

[astvilla]

And when you roll over the 15K, does that cover the $5500 limit for private Roth IRA?  So when you roll over, can you do 20.5K that year or only the 15K? Or maybe continually take some 5500 from myRA and add another 5500 to private Roth IRA?

It just seems to make tracking limits more complicated.

But why offer myRA at all then? It's only in gov't securities.  This doesn't seem like a good idea when you can do almost the same in a regular Roth. 

[Paul der Krake]

The main selling point is that folks of modest means can open an account without a minimum contribution amount of $3k or whatever the minimum currently is at reputable IRA providers. A sort of hand holding from the federal government until they reach real money amounts, at which point they are nudged towards private options.

I can't think of a single scenario in which Mustachians would personally benefit from this.

And when you roll over the 15K, does that cover the $5500 limit for private Roth IRA?  So when you roll over, can you do 20.5K that year or only the 15K? Or maybe continually take some 5500 from myRA and add another 5500 to private Roth IRA?

It's treated exact same way as other IRAs today. Rollovers don't count towards limits.

[johnny847]

I can't think of a single scenario in which Mustachians would personally benefit from this.

I can't either.

[Scandium]

The main selling point is that folks of modest means can open an account without a minimum contribution amount of $3k or whatever the minimum currently is at reputable IRA providers.

That's the only selling point as I see it. I'm pretty sure the minimum at Schwab was $1,000. Which might be a lot for some, but I'm thinking that anyone who can't come up with a single grand probably can't contribute much of anything to an IRA anyway. The whole thing seems pretty pointless.

[norabird]

I think it's a great option for people not able to deal with the minimums, plus it works for those without employer plans. I count myself in that number (except of course I have a 401k)! I too wonder about if the limit is separate from the one on regular contributions. But nice to see an entry-level accessible option.

[johnny847]

I too wonder about if the limit is separate from the one on regular contributions. But nice to see an entry-level accessible option.

https://myra.gov/how-it-works/

Q: Why does myRA have an annual contribution limit?
A: myRA is a Roth IRA so it follows Roth IRA rules, which include an annual contribution limit.

[Paul der Krake]

The main selling point is that folks of modest means can open an account without a minimum contribution amount of $3k or whatever the minimum currently is at reputable IRA providers.

That's the only selling point as I see it. I'm pretty sure the minimum at Schwab was $1,000. Which might be a lot for some, but I'm thinking that anyone who can't come up with a single grand probably can't contribute much of anything to an IRA anyway. The whole thing seems pretty pointless.

The fact that it's deducted at the source is likely a psychological boost that shouldn't be neglected; it's  the whole "you can't spend what you don't see" phenomenom. It would be fantastic if we had a nation of savers that don't need to be tricked into saving, but that's not going to happen overnight.

[stepitup]

I think this could work out as a good option for someone just starting up their emergency fund. Since it's guaranteed not to go down in value and your allowed to withdraw your contributions at any time, using it would allow you to not miss out on the contribution allowance. If later, you begin to max out your contribution limit and have additional savings outside of the Roth for an emergency fund, you could then transfer it to another Roth account with mutual fund access.

[CheapskateWife]

I was wondering if this might be a good place to start up my son's retirement account.  He is only 16 and making very modest income but I like the idea of something with a low entry threshold and then graduating up to Vanguard when he has some serious money in a year or so.  Maybe this is a tool to start flexing those mustachian muscles.

[Scandium]

I was wondering if this might be a good place to start up my son's retirement account.  He is only 16 and making very modest income but I like the idea of something with a low entry threshold and then graduating up to Vanguard when he has some serious money in a year or so.  Maybe this is a tool to start flexing those mustachian muscles.

If he makes less than $1,000 I guess it could be good. If he makes more I'd just set him up with a Roth at Schwab or fidelity. I think they both have a $1000 minimum.

[modulus]

I was wondering if this might be a good place to start up my son's retirement account.  He is only 16 and making very modest income but I like the idea of something with a low entry threshold and then graduating up to Vanguard when he has some serious money in a year or so.  Maybe this is a tool to start flexing those mustachian muscles.

If he makes less than $1,000 I guess it could be good. If he makes more I'd just set him up with a Roth at Schwab or fidelity. I think they both have a $1000 minimum.

Vanguard target date funds also have a $1000 minimum if you want to stick with Vanguard.  You can exchange them within the Roth IRA for any other Vanguard fund once he hits $3000.

[Cornbread OMalley]

If myRA is the next touted thing then why limit the contributions to $15K?

[Paul der Krake]

If myRA is the next touted thing then why limit the contributions to $15K?

Because it's not "the next touted thing". It's a funnel to bring workers who haven't given any thought to retirement savings a dead-easy option to hopefully put them on the right track and build confidence until they are ready to leave the nest.

[Cornbread OMalley]

It's a funnel to bring workers who haven't given any thought to retirement savings a dead-easy option to hopefully put them on the right track and build confidence...

A funnel.  Exactly.  That's what touting is!  The $15K limit tells me this: the government wants to masquerade that it is helping people save for their future.  But the government wants to limit contributions so the government can still take its share in taxes.  And don't forget the government has the power to change the law later and say,"Sorry, but we decided to tax your contributions to myRA."

[johnny847]

It's a funnel to bring workers who haven't given any thought to retirement savings a dead-easy option to hopefully put them on the right track and build confidence...

A funnel.  Exactly.  That's what touting is!  The $15K limit tells me this: the government wants to masquerade that it is helping people save for their future.  But the government wants to limit contributions so the government can still take its share in taxes.  And don't forget the government has the power to change the law later and say,"Sorry, but we decided to tax your contributions to myRA."

myRAs ARE Roth IRAs. Your contributions to myRAs are already taxed!

[Cornbread OMalley]

myRAs ARE Roth IRAs. Your contributions to myRAs are already taxed!

TOUCHE!  I'll give you that one.  But answer me on the $15K limit.

[johnny847]

myRAs ARE Roth IRAs. Your contributions to myRAs are already taxed!

TOUCHE!  I'll give you that one.  But answer me on the $15K limit.

I don't have one. I never said myRAs were a good idea to begin with.

[Cornbread OMalley]

I don't have one. I never said myRAs were a good idea to begin with.

What can we do?  The best answer is if everybody owned their finances instead of relying on the gov't to provide an answer.

[Mother Fussbudget]

Keep in mind:  the IRS treats myRA as a Roth IRA account - all rules (contributions are post-tax) and limits apply.

TOUCHE!  I'll give you that one.  But answer me on the $15K limit.

From the myRA.org website FAQ #9:  How much can I save with myRA?

You can put in (or contribute to) your myRA as little as a few dollars a month up to $5,500 per year (or $6,500 per year if you will be 50 years of age or older at the end of the year) but not more than your earned income.  The contribution limits listed are for 2015 and they may change in future years.  Money in your myRA continues to earn interest until your account reaches $15,000, or 30 years from the day you first funded the account (whichever comes first).  Then the balance will be transferred to a private-sector Roth IRA, where you can continue to invest your savings and make additional contributions. You can also transfer or roll over your myRA to a private-sector Roth IRA of your choice at any time.

This is designed for someone who can't save up $1,000 at a time without finding something shiny to spend it on. 
But realize this is a Treasury Bond investment...  This from FAQ #6:  How is the money in myRA invested?

The money you put in your myRA account is invested in a United States Treasury savings bond, that safely earns interest at the same variable rate as investments in the Government Securities Fund for federal employees. The return for these investments was 2.31% in 2014 and 3.19% over the ten-year period ending December 2014. Past performance is not a guarantee of or prediction of current or future performance.

So it *might* keep up with inflation.  Better than a standard savings account.  Safe - backed by the US government.  AND does not take advantage of the growth / losses in the stock market.

Assumptions:  $5,400/year contributed.  Annual_Bond_returns=2.3%.  Annual_Market_returns=7%.
myRA:  Total Saved = $16,950
Roth IRA:  Total Saved = $18,570
BOTTOM LINE:  Contribute $450/month to a Roth IRA, and accumulate $1,600 more over 3 years.

[CheapskateWife]

We've done some tax-casting and DS is going to be getting a tax refund for 2015 after spending the summer working.  I have a deal going with him, that if he put it into a ROTH IRA, I would match him dollar for dollar.  Now I'm thinking I might as well just pad him up to the full $1K (only $100 more) and start him off on the right foot with Vanguard. 

I would think that rolling a myRA over is going to be time consuming (well it is a federal program), and I don't want the young man to loose investing steam over the idea that he can't get his money out in a timely manner. 

[johnny847]

We've done some tax-casting and DS is going to be getting a tax refund for 2015 after spending the summer working.  I have a deal going with him, that if he put it into a ROTH IRA, I would match him dollar for dollar. Now I'm thinking I might as well just pad him up to the full $1K (only $100 more) and start him off on the right foot with Vanguard. 

Just make sure he actually earns at least $1k. He can't put in more than his compensation.

[CheapskateWife]

Kid did good for just a few weeks as a lifeguard....thanks for the warning but he did way better than $1K

[Tjat]

isnt the only thing one can invest in within a myRA is T-bills? Guaranteed to not lose money and guaranteed not to make any! The cynical side of me just sees this as a way for the gov't to find buyers for their debt....

[MayDay]

We are going to suggest it to my SIL.

She is low income and makes terrible financial decisions. 

We got her to put a tiny bit every month in her 401K at work, where she gets a match.  We are hoping that this will encourage her to save even more since she can get it back out whenever.  She is living with MIL right now, theoretically saving up to move out, and that savings would be better at 3% than 0% in the bank.  And maybe she will leave them in there and eventually roll it over somewhere else.

If she had to save up 1K to start an IRA, I guarantee she would be dead before she managed it.