A couple years ago the U.S. Treasury Department started a program called MyRA (My RA, sounds like “IRA”). It’s a savings account that allows anyone to save small amounts of money in a retirement account that pays interest similar to U.S. Treasury bonds. (It’s basically the government securities fund that’s part of the TSP retirement savings program for government employees.)
The MyRA account is much like a Roth IRA: you can deposit only after-tax earnings into the MyRA, so there are limited tax benefits for putting money in; however, all accumulated earnings can be taken out free of taxes (if the withdrawals are made under certain conditions, such as the account owner being over a certain age — this is a retirement account, after all).
Several news articles have criticized the MyRA program on the grounds that it can’t completely solve the nation’s retirement savings problem. One criticism is that there are no investment options to allow accounts to be invested in stocks or corporate bonds. The interest rates on U.S. government bonds are only slightly higher than what is available on passbook savings accounts at banks. Another criticism is the maximum account value, above which you are not allowed to make additional deposits. This maximum is so low ($15,000) that the MyRA by itself won’t make much of a difference in a retired person’s financial affairs.
However, I think those criticisms are more than offset by the MyRA program’s advantages. First, the minimum amount required to open an account or make a deposit is very low. Like, $2, I think. That’s obviously lower than the required minimums at commercial banks and much lower than what’s needed to open an account at mutual fund companies. Similarly, there are no fees charged to open or maintain an account. What bank is going to open a savings account for someone with an initial deposit of $10 and then allow that person to make $20 monthly deposits — and without charging any fees?
If you have the minimum amount required to open an account at a mutual fund company (which is $1,000 at the very lowest and more likely $2,000 or $3,000) then I highly recommend you go directly to the Vanguard website and open an account right now.
For everyone who can’t easily gather up $3,000 to start their retirement savings accounts (e.g., most people who earn less than our country’s average earnings, a group that includes many young people), MyRA is an easy and safe way to get started. $50 a month, maybe a bit more now and then, will grow to over $2,000 in 4 years. That balance can then be transferred to a private Roth IRA at Vanguard or any other investment company. This is the real purpose of the MyRA — to help people get started and allow them to save a sum that can be transitioned to “real” investments. Once there, of course, it can be invested in stock or bond mutual funds where it will earn returns that will make a real difference in retirement.
That’s the beauty of the MyRA. It gives everyone the opportunity to start saving and investing.
To learn more, go to myra.gov.
