As the 2016 tax season gets underway, the U.S. Department of the Treasury is encouraging Americans to consider using their federal tax refunds to boost retirement savings—including through the myRA savings initiative launched by the outgoing Obama Administration.
According to materials shared by the Treasury Department, during 2017, individuals can set up automatic direct deposit contributions to a myRA account through their employers; fund a myRA account directly by setting up recurring or one-time contributions from a checking or savings account; and at tax time, they can direct all or a portion of a federal tax refund to a myRA.
When individuals save with a myRA, they may also qualifyfor the Saver’s Tax Credit, which can lower the tax bill or increase the refund for low- and middle-income workers, the department explains. Eligible individuals can take the Saver’s Tax Credit by filing Form 8880 or working with a tax preparer.
Individuals who contribute to a myRA or a Roth IRA with modified adjusted gross income below certain levels (for 2015, $61,000 if married filing jointly, $45,750 if head of household, $30,500 if single) may be eligible to claim a Saver’s Tax Credit for their contributions, according to the Treasury Department. The amount of the Saver’s Tax Credit can be 50%, 20%, or 10% of retirement contributions, up to $2,000, depending on income and filing status.
For its part, the myRA program requires an initial contribution of at least $25 and automatic ongoing contributions of $5 or more every pay period, and accounts are available to any individual with an annual income of less than $129,000 or a couple with annual income of less than $191,000. So far few employers or employees nationally have signed on, but officials remain optimistic that the myRA will catch on.
Outgoing U.S. Treasury Secretary Jacob J. Lew recently commented on the progress of the myRA program, which opened to the public around the beginning of 2016, administered by the Dallas-based bank/financial services provider Comerica. While the myRA remains lightly utilized and will likely not be a mainstay of anyone’s retirement income plan, Secretary Lew says it represent a “simple, safe and affordable retirement account.” He urges Americans who have not started saving to “jumpstart” their financial future by putting some of their tax refund into a myRA—or any type of savings account.
According to the Internal Revenue Service, eligible workers still have time to make qualifying retirement contributions and get the saver’s credit on their 2016 tax returns. Individuals have until the due date for filing their 2016 return (April 18, 2017), to set up a new individual retirement arrangement or add money to an existing IRA for 2016. This includes the Treasury Department’s myRA.