Given what we know about the longer lives of Americans and the cost of healthcare in retirement, it’s hard to fathom the fact that less than 31% of Americans still don’t have an IRA. Among those who do own an IRA, approximately 19% make contributions every year. A report from TIAA found that a very small percentage—5%—of all Americans contribute more than $5,000 a year to their IRAs.
But Kiplinger reports in its recent article, “Say Goodbye to MyRA, Hello to Roth IRA,” that some people looking to save for retirement are losing a way to do it: the myRA.
The U.S. Treasury Department recently announced it is ending the Obama administration’s myRA program, because it wasn’t cost effective.
myRA was a no-fee way to save for retirement that was designed for people without access to employer-sponsored retirement plans like 401(k)s. It began two years ago for lower-income savers, although it was also open to those with incomes in the six figures. The accounts had no minimum deposits.
The Treasury Department said the demand for and investment in the program has been very low. Taxpayers have paid about $70 million to manage the program since 2014.
The next question for those of us with modest means, is how to invest for retirement now that myRA is gone? Here are some suggestions:
Don’t cash it in. If you’re in the myRA program, don’t cash your money out of the account. That could mean taxes and an early-withdrawal penalty, if you’re under age 59½. Set up a Roth IRA with another provider. In fact, the myRA website has added a feature to walk consumers through the process of selecting a new Roth IRA provider and moving their funds.
Plan your rollover. You want to avoid triggering possible taxes or penalties when you move money from your myRA to a new account. Therefore, prior to initiating a direct rollover or transfer, open a new Roth IRA with a different provider. Work with the new Roth IRA provider to transfer your myRA balance to your new Roth IRA. If you don’t do a direct transfer, redeposit the full amount into a new Roth IRA within 60 days to avoid taxes and penalties.
Set up automatic savings. Start a direct deposit of a set amount of money into a 401(k) or IRA for every pay period. The money in Roth IRAs grows tax-free. Remember these other basics for Roth IRAs:
- The annual maximum amount you can deposit in 2017 is $5,500 ($6,500 if you're 50+);
- Your contributions can’t exceed your earned income;
- You can withdraw your contributions (not your earnings) at any time, regardless of your age, without paying taxes or a penalty (provided you’ve had the account for five years);
- When you hit 59½, all withdrawals are tax-free (provided you’ve had the account for five years); and
- There are income limits for contributions. For single filers in 2017, the ability to contribute begins to phase out at $118,000 (married filing jointly sees the phase out at $186,000).
Let’s face it: many people do not save for retirement because they simply can’t. But many people don’t save for retirement because they don’t wish to give up something today for what seems like a tomorrow that will never come.
Even families with modest income levels, should consider putting aside a little bit of money every month to build some retirement savings.
Reference: Kiplinger (August 2017) “Say Goodbye to MyRA, Hello to Roth IRA”