According to J. Mark Iwry, senior advisor to the Secretary and Deputy Assistant Secretary (Tax Policy) Retirement and Health Policy at the United States Department of the Treasury in Washington, D.C., under the myRA program, workers looking to start saving will be able to purchase a specially designed Treasury retirement savings bond held in a Roth IRA. The bond will have an add-on feature, meaning that additional contributions will increase the value of a single security, instead of requiring the purchase of multiple securities. Treasury intends to begin phasing in the myRA program by the end of 2014.
Iwry pointed out that initial investments could be as low as $25, and contributions that are as low as $5 could be made through payroll deduction. As starter accounts, myRAs will be limited to a cumulative $15,000 each–not a target for saving, but rather a transition point at which the individual’s savings would shift to a private-sector Roth IRA. If a saver’s myRA never accumulates to $15,000, it will be shifted to a private-sector Roth IRA after 30 years.
“While obviously not nearly enough to fund a secure retirement, $15,000 may be enough to ‘prime the pump’ and instill a lifelong habit of continued saving, and should be enough to make a saver’s account viable in the private sector,” Iwry said. He explained that myRA accounts could serve as incubators for accumulations of savings small enough that their administrative costs could exceed their earnings. After the $15,000 is transferred, savers will be able to continue saving and accumulating balances greater than $15,000 that could be invested in diversified investment portfolios with greater growth potential.
During an initial phase, myRAs will be offered, only by payroll deduction, to employees of employers that choose to participate. Employees will sign up for myRA accounts online and will not be charged administrative or investment fees. The accounts will be easy for employers to offer, as employers will neither administer the accounts nor contribute to them. As is currently the case for Roth IRAs generally, the account owner–not the employer–is responsible for complying with limits on Roth IRA eligibility based on compensation as well as annual IRA contribution limits.
Iwry pointed out that myRA is intended to help working Americans who lack access to an employer-sponsored retirement plan. Employees who are eligible for employer-sponsored plans will continue to have many good reasons to participate in those plans rather than in myRAs, he said. As a result, myRAs will complement, not compete with, employer-sponsored plans.
Additional contribution channels, such as direct participation by the self-employed, will be explored over time, and could be added as feasible.
More details about myRA are in Iwry’s testimony here.
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