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By: Jay Mittelman
MyRa is making its long-awaited debut.
|Roth vs. myRA
As with Roth IRAs, qualified distributions from plans in existence for at least five years are tax-free. Qualified distributions include those made:
Other payouts are generally taxed under favorable rules. However, unless there is an exception, distributions to an owner who is under the age of 59 1/2 are subject to a 10 percent penalty.
Unlike Roth IRAs, myRA allows only one investment option: A U.S. Treasury bond at the same interest rate as the nonmarketable bond offered to federal employees through the Thrift Savings Plan. This may provide employees with some peace of mind, but it prevents them from seeking a potentially greater return.
The annual availability limits match those on Roth IRAs. For 2015, availability is phased out for a modified adjusted gross income (MAGI) between $116,000 and $131,000 for single filers and between $183,000 and $193,000 for joint filers. This eliminates myRA as an option for many upper-income taxpayers.
MyRA holders must roll over funds into a Roth IRA once the account balance reaches $15,000. They can choose from a list of Roth options. For some individuals, it may be more logical to just open up a Roth IRA in the first place.
The plan is meant to help companies offer, at no cost, an introductory program for employees who currently do not have access to an employer-sponsored retirement plan. Employees will benefit from asset accumulation without any investment risk, taxes or penalties.
MyRA, a shortened version of “my IRA,” is designed to resemble a Roth IRA, but with a few different wrinkles:
Maximum myRA contributions for the 2015 tax year are $5,500 — $6,500 if the employee is 50 years of age or older. These are the same amounts as those for traditional and Roth IRAs. The contributions grow without any tax erosion until withdrawals begin.
Keep in mind that your firm will not:
All your firm must do is facilitate a payroll deduction from employee paychecks for each regular pay period.
Your firm’s responsibilities can be broken down into three simple steps.
Resources at Your Disposal
The Treasury Department is doing its best to encourage participation in myRAs. It has provided tools and other resources for employers on its updated website, where it lists these nine items:
|1. Guide for Employers: A guide to help participating employers introduce myRA to their employees.
2. Poster: A larger piece to hang in the workplace, intended to grab employees’ attention.
3. Brochure: A double-sided brochure that can be printed or emailed.
4. Infographic: Helps explain the myRA in simple, straightforward language. Can be used online or printed.
5. Web Banner: Directs people to the Treasury website for use on a company’s intranet.
6. Intranet Content: If you have an intranet, you can post this information about myRA.
7. Top Questions: Frequently asked questions about myRA that can be printed or emailed.
8. Employee Email on myRA: Use this to explain myRAs to employees and encourage them to sign up.
9. Employee Meeting Toolkit: Use these resources to set up a meeting with employees about myRAs.
Most of these materials can be downloaded right from the website.
In summary: MyRA is being met with some skepticism in the workplace, especially when it is compared to other retirement saving alternatives with higher contribution limits. Nevertheless, it may appeal to workers who are just getting started in their careers or otherwise have been unable to set aside enough funds for retirement.
If your firm chooses to offer myRAs, educate employees on all the rules, including those requiring direct deposit. For employers, this is a no-muss, no-fuss benefit you can provide to your employees.