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myRA: For those who think they make too little to save for retirement

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nightglider
Regular Contributor

myRA: For those who think they make too little to save for retirement

I did not find another thread on this topic. If I overlooked it, my apologies.

 

myRA

 

This is only a summary. The link above provides much more information.

 

This is a relatively new type of retirement account developed by the Department of the Treasury, so some of you may not know about it. At its core, it is a Roth IRA. As such, myRA contributions count against maximum IRA contributions for a given tax year. However, it is not a typical Roth IRA.

 

The myRA is a starter retirement account. There is no minimum to start, nor are there any maintenance fees. Contributions are invested in a US Treasury Bond earning the same interest as the Government Securities Fund in the TSP.

 

The total lifetime contribution limit is $15,000 and the account can only be open for 30 years. When one of those conditions are hit (either one), the money must be transferred to a private-sector Roth IRA. After you have transferred the money, you cannot open another myRA account.

 

The minimum initial investment amounts on most investment funds can scare away some people if they don't think they make enough to start, even with automatic investment plans. This attempts to solve that problem.

Message 1 of 5
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Anonymous
Not applicable

Re: myRA: For those who think they make too little to save for retirement

The intentions of this are good, but I don't think investing in these bonds is a good strategy, especially for investors with a long term investment horizon. An large cap index fund might be a better choice. But, hey, if it gets sone people to invest, it's better than nothing. I wish they had set up a program similar to Canada's  tax free savings accounts. Anyone can invest up to 10,000 in a tax deferred account with lots of investment  options. http://www.cra-arc.gc.ca/tfsa/

 

Message 2 of 5
nightglider
Regular Contributor

Re: myRA: For those who think they make too little to save for retirement

100% investment in bonds isn't a good thing, and certainly not for the long-term investor. However, that's not the target segment for this account (admittedly though, 30 years would be long-term even for Benjamin Graham, I'm sure).

 

A cousin of mine recently turned 16. She had a summer job for a few weeks. I bought her a few of the books that got me into the investing world (yes, these books are suitable for a 16-year-old). However, she simply doesn't know much about investing and she's got higher priorities right now than looking up administrative fees and potential returns. She was the first person I thought of when I looked this up and the perfect demographic for this type of account.

 

I believe there are two types of people this type of account is perfect for:

1. Those with low/unreliable income.

2. Those who have not learned basic investing habits.

Message 3 of 5
Blazesian
New Contributor

Re: myRA: For those who think they make too little to save for retirement

So in other words, the account above would be great for someone starting out like me? No experience or knowledge what-so-ever of investing..

Message 4 of 5
nightglider
Regular Contributor

Re: myRA: For those who think they make too little to save for retirement


@Blazesian wrote:

So in other words, the account above would be great for someone starting out like me? No experience or knowledge what-so-ever of investing..


Possibly, though I'd say it's better for someone falling under the first category I mentioned than the second. If you can max out your contributions for the year with one deposit, plenty of private sector companies have their own bond funds you can park your money in while you figure out what to do with it.

 

However, I believe the lack of fees would make a myRA account the better choice if you'll be making a smaller stream of deposits.

Message 5 of 5
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