WASHINGTON — Starting this week, people who don’t have access to a retirement savings plan at work will have an easier time setting aside cash.
The myRA program, a government backed retirement plan first announced by President Barack Obama in 2014, has now launched nationally, the Treasury department said Wednesday. The myRA is a form of Roth IRA, which allows workers to save their after-tax dollars for retirement. It’s aimed at overcoming some of the obstacles that keep some workers from saving for retirement, especially those who are low-income or who lack retirement benefits: The myRA charges no fees, is low-risk and convenient.
By allowing people to set up automatic contributions, the program is meant to make it easier for people to save, officials said. And contributions can be small, even as little as a few dollars. The accounts have no minimum balance.
“One thing we know is that when people start saving, they’ll continue,” Treasury Secretary Jacob Lew said. “The challenge is to create the habit of saving in the first place.”
People also don’t need to worry about losing money because their savings would be stored in an account where their principal is backed by the U.S. government. The plans will store people’s savings in low-risk investments where the money can grow at a conservative interest rate.
Since last year, the government has been testing the program quietly through a pilot that allowed people to set up automatic deductions from their paychecks. But in the official rollout, the government is also letting people contribute from their checking or savings accounts and even from their tax refunds. Like a regular Roth IRA, workers contribute up to $5,500 a year, or $6,500 a year for people age 50 and up.
Thirty-one percent of workers have no pension or retirement savings, according to a report released earlier this year by the Federal Reserve. And only about half of all workers participate in a retirement plan, according to the Bureau of Labor Statistics.
For many workers, the biggest obstacle is gaining access to a retirement plan. Only 31 percent of workers earning the lowest wages had access to a retirement plan through work this year, compared to 90 percent of the highest earners, according to the bureau. And 38 percent of part-time workers had access to retirement benefits through work, in contrast to 80 percent of full-time workers who did.
The myRA program is intended to help close that gap. But the accounts, which officials described as “starter accounts” for people who aren’t saving for retirement, don’t offer a long-term solution. Savers can only set aside a maximum of $15,000 in a myRA before the cash needs to be rolled over to a private sector Roth IRA, where they would find more options for investing their money. And people can’t use the accounts indefinitely. They need to roll the money over to a Roth IRA after being in the program for more than 30 years. (The option of transferring savings to a private-sector Roth IRA is available at any time.)
As with a traditional Roth IRA, people must be earning taxable income if they want to use the accounts, which are available to workers earning less than $131,000 a year or married couples earning less than $193,000 a year.
People can sign up through myRA.gov. Savers can withdraw the cash they put in tax-free and penalty-free at any time. But interest earned is subject to the same restrictions as Roth IRA accounts, which allow savers to withdraw money tax-free and penalty-free if the account has been open at least five years. And workers can carry the plan from one employer to the next if they change jobs.
Because of their conservative nature, people saving for retirement with these accounts may not experience the investment potential needed to help their savings grow substantially over time. But Lew said the myRA is meant to get people to begin saving now, which may encourage them to save larger amounts later on.
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