When you’re hanging onto your job for dear life, it’s tough to think about saving for retirement. And when we do save for it, experts have found we often don’t do it well. We’ve explained why your retirement won’t be like your parents’ and why you fret about your 401(k).
Well, now there may be some hope for workers seeking to build secure retirements.
President Obama on Wednesday signed an order directing the Treasury Department to create “government-backed retirement accounts,” according to CNNMoney.
The new MyRA program, announced by the president during Tuesday night’s State of the Union address, is aimed at low- and middle-income Americans who don’t have employer-sponsored retirement savings. “That includes roughly half of all workers and 75 percent of part-time workers,” CNNMoney says.
Overall, the plan seems to offer plenty of pros and few cons.
- It’s a savings bond that can be purchased with as little as $25.
- The principal is guaranteed by the U.S. government, much like a savings bond.
- It’s open to households earning up to $191,000 a year.
- Participants may save up to $15,000 a year for up to 30 years.
- Contributions can be as low as $5 through payroll deduction.
- MyRA earns the same interest rate as the federal employees’ Thrift Savings Plan Government Securities Investment Fund, which earned 1.74 percent last year.
Now for a few things to note that aren’t really drawbacks but are more like caveats:
- Like contributions to a Roth IRA, contributions to MyRA are not tax-deductible.
- Contributions can be taken out tax-free at any time, that’s not true of interest. Says CNNMoney, “However, anyone who withdraws the interest they earned in the account before age 59 1/2 will get hit with taxes and a possible penalty, just like a Roth IRA.”
Still ready to sign up? You can’t do it yet and might not be able to for a while, depending on your employer. CNNMoney reports:
The White House says it will “aggressively” encourage employers to offer the program, noting that they won’t have to administer or contribute to the accounts. MyRAs will initially be offered through a pilot program to workers whose employers sign on by the end of the year.
There’s little question that retirement plans have changed through the years. MyRA may change things again, seemingly for the better.
Do you think this new program will help more Americans prepare for a secure retirement? Share your thoughts in the comments below or on our Facebook page.