When it comes to saving for retirement, low-income families can have difficulty finding a suitable program that meets their needs – but it's especially important that they do find one. Everyday bills and unexpected emergencies can easily push lower-income Americans into difficult financial positions without having a regimented savings program to help with budgeting and financial discipline. Unfortunately, in the near future Americans will have one fewer retirement savings option from which to choose.
The Obama administration created the myRA retirement savings program in 2014 to encourage savings among people who have little experience – or confidence – in investing in the markets. After a recent review, the U.S. Treasury Department concluded that the benefits of myRA did not outweigh the costs and subsequently announced the winding down of the program in 2017.
The myRA program offered a conservative alternative to most retirement programs by investing in Treasuries instead of equities. Investments were managed within Roth IRAs, assuring tax-free dollars at retirement (since Roth IRAs are funded with after-tax dollars). As a final incentive to low-income savers, there were no fees or minimum deposits with myRA.
However, those advantages for investors came at a price to the Treasury Department, and therefore to taxpayers. U.S. Treasurer Jovita Carranza noted in a statement that myRA cost taxpayers almost $70 million since 2014.
The Treasury Department will notify myRA account holders with details about the timing on the closing of their accounts, although all myRA accounts with $0 balances may be subject to automatic closure as of September 18, 2017. Log into your account frequently as the deadline approaches to check for any updates.
What should you do with the balance in your account? The best choice is to roll the myRA into a private sector Roth IRA. By rolling the myRA directly into a new Roth IRA, you maintain your savings program and avoid taxes on the earnings generated by your contributions (contributions may be withdrawn tax-free, but earnings will still be subject to tax).
You must roll the Roth IRA over into another Roth IRA, not a 401(k) or a traditional IRA that uses pre-tax dollars. Start by researching available Roth IRAs and investigate in detail the ones that fit your situation best. Private-sector Roth IRAs range from conservative to aggressive and, depending on your choice, provide greater return than you received with myRA – but that upside comes with greater risk and the potential to lose money.
In addition, you must consider fees and minimum investment requirements. Private sector Roth IRA programs can't absorb costs in the way that the Treasury Department did with myRA. Find a program that falls within your ability to fund the minimum requirement and review the corresponding fees carefully. You aren't necessarily looking for the lowest fees – you are looking for the best value for the fees that you pay. Don't be afraid to question what you receive in return for your costs.
Once you have successfully rolled over your myRA, continue to make any remaining contributions for the year. You can contribute up to $5,500 in 2017 (or $6,500 if you are age fifty or above).
If you are affected by the end of the myRA program, make sure that you have a plan in place to roll over your balance into a suitable Roth IRA substitute. Resist the temptation to cash out – it's important to keep the savings momentum going. Otherwise, you may jeopardize your ability to retire comfortably (or at all).
Having trouble finding your way among all the confusing transfer options? Seek the advice of a financial professional. Your retirement is too important to leave to guesswork.
If the closing of the myRA account didn't affect you because you have no retirement savings at all, use this opportunity to make a plan for your retirement. Start with a budget that gives you a surplus – even a small one is a start – and find an investment with which you are comfortable. Savings is a mindset, and the sooner you get into that mindset, the better off you will be as retirement approaches. Let the free Retirement Planner by MoneyTips help you calculate when you can retire without jeopardizing your lifestyle.