No Retirement Plan at Work? Here’s a Simple (and Free) Alternative

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Although he’s still in college, John McKinney wanted to start slowly saving for retirement.

Six months ago, he opened a myRA account, a new retirement savings account from the U.S. Treasury Department.

A senior at Western Kentucky University, McKinney works part time while going to school, so he doesn’t have access to a 401(k) account just yet. He contributes roughly $30 a week to his myRA account.

“They’re good for people who are just now entering the workforce or are employed somewhere without benefits,” he said. “I also am relatively new at being financial responsible, so using myRA keeps me from using the money, as opposed to a savings account that is easily accessible.”

The myRA account is designed for people who don’t have access to an employer-sponsored retirement savings plan and to be less intimidating than private-sector Roth IRAs for new or first-time savers. The accounts also cost nothing to open and have no fees.

You can easily sign up online and link your myRA directly to your bank account — or set up direct deposit through your employer.

Nearly one-third of non-retired people have no retirement savings, according to a 2015 Federal Reserve Report. The Treasury Department piloted these plans with 60 employers back in December 2014, before making myRA accounts available nationwide in November 2015.

“MyRA is designed to remove common barriers to saving, and give people an easy way to get started,” said U.S. Treasury Secretary Jacob Lew in a statement. “MyRA has no fees, no risk of losing money and no minimum balance or contribution requirements. To make saving easier than ever, you can now put savings into myRA directly from your bank account.”

Here’s what you need to know about these new accounts.

MyRA Accounts, Explained

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A myRA is technically a Roth IRA and subject to the same rules and regulations as Roth IRAs offered through an investment management company.

These accounts were designed to be a bridge to other retirement saving options and intended to be starter accounts for first-time savers. There are no minimum contribution requirements to open an account — you can save $1 at a time if you have to!

The money you deposit into your myRA account is invested in a new U.S. Treasury retirement bond, which will not lose money. These investments earned 2.04% interest in 2015.

This makes the myRA account unique. Roth IRA accounts grow and shrink with the market, and allow you to invest in an array of stocks, bonds, mutual funds and other options.

“The investment in your myRA account will not lose money (unlike investments in stock and other investments tied to the market),” according to the myRA website. “MyRA … places priority on the stability and preservation of your money rather than on the opportunity to earn higher returns with greater risk.”

You can make myRA contributions by setting up an automatic direct deposit through your employer, recurring or one-time contributions from a checking or savings account or even directing a portion of your federal tax refund to the account — all after-tax contributions.

If you need to access money in your myRA account, you can withdraw it tax- and penalty-free. But keep in mind, interest earnings may be taxable if you withdraw them — also true for a private Roth IRA.

Eventually, account holders must transfer their myRA savings to a private Roth IRA. These accounts max out at $15,000, unlike private-sector Roth IRAs — which let you keep saving until you retire.

Just like a Roth IRA, you can contribute up to $5,500 per year to a myRA account — $6,500 per year if you’re over 50. To be eligible to contribute to either account, you must be earning income in the U.S. and earn below $132,000 as a single person or $194,000 if you’re married.

You can even have both kinds of accounts if you want, but you’re still subject to the total IRA annual contribution limit.

If you’re married and at least one person is earning income, you can both save in separate myRA accounts — a good option for stay-at-home moms and dads!

A Big Draw: The Stability of U.S Treasury Bonds

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For Annabell Minturn, a myRA account was a good option while she was a full-time student at the University of Kansas and working part time as a tax professional for H&R Block.

Her goal is to save about 10% of her income this year. She plans to make several one-time contributions of roughly $500 each to her myRA account this year, while she finishes a master’s degree.

Minturn says she liked the stability of the account’s interest earnings, since it’s backed by U.S. Treasury bonds. Her only complaint was about the myRA account website, which is run through Comerica bank.

Once she got her account set up, though, it was easy to make deposits, she explains.

“The website is incredibly simple and featureless,” she says. “Their customer base is people who don’t have retirement savings and these are naturally going to be younger people for the most part. We are digital natives, I bank exclusively online, yet it’s literally the worst banking website I’ve seen.”

Starter Accounts for New Savers

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So, how do you know if a myRA account is right for you?

These accounts were never intended to take the place of existing retirement saving options such as 401(k) accounts and Roth IRAs. They were intended to help bridge the gap to those accounts for people who have little or no savings.

If you have access to a 401(k) at work, especially one offering an employer match, use it. If you don’t, you’re leaving free money on the table.

And if you already have a Roth IRA, chances are you’re already in the habit of saving for retirement, so a myRA likely wouldn’t make sense for you.

If you’re just starting to save for retirement, or aren’t earning much money but want to start saving something, a myRA account might be a good fit for you for now, and you can eventually roll the money over into a Roth IRA.

Your Turn: Have you started saving for retirement?

Sarah Kuta is an education reporter in Boulder, Colorado, with a penchant for weekend thrifting, furniture refurbishment and good deals. Find her on Twitter: @sarahkuta.