The government just gave young workers struggling to sock away money for the future an early holiday-season gift.
It’s called a myRA, and it’s designed to make saving for retirement more attainable and less of a hassle.
The new investment, introduced by the U.S. Treasury Department in early November, is broadly aimed at workers without access to 401(k)s and other similar retirement savings products.
But because there are no age requirements for opening the account, it may be attractive even for teenagers making small amounts of money from baby-sitting, lawn care and fast-food jobs. All you need is earned income, such as a salary and wages. In that regard, the myRA is similar to Roth IRAs, which I also encourage young workers to consider.
When retirement is decades away, it may seem low on the priority list for an 18-year-old to be parking money in a myRA. But according to a Federal Reserve report released earlier this year, 31 percent of working adults said they have no retirement savings or pension whatsoever to fall back on.
While the myRA has some limitations, it is an easy way to start building a nest-egg.
The accounts have no startup or annual fees, and you can contribute as little as $1 to open one. Try finding an investment company that allows an account to be opened for such small amounts.
You can contribute up to $5,500 a year ($6,500 if you’re 50 or older), and the money can be automatically deposited in the account from your paycheck, bank account, or even a tax refund. Anyone earning less than $131,000 a year (or $193,000 if married and filing taxes jointly) is eligible to contribute. The starter retirement account also follows many of the same rules as a Roth regarding withdrawals. (For customer information, call 855-406-6972).
There’s one big potential trade-off: This is a very conservative investment.
The account invests only in a U.S. Treasury security, which is government guaranteed to never lose money. It earns the same rates as the Government Securities Fund for federal workers. In 2014, the one-year return for these investments was 2.31 percent, while the 10-year return average was 3.19 percent.
That might not provide enough sizzle for younger investors, said Barbara McMahon, a financial planner in Kansas City.
“I often encourage young people to invest in more aggressive investments now because it’s possible they’ll prefer more conservative investments as they get older,” McMahon said. “An investment with more volatility may have the potential for a better return over the long run, and people tend to be more tolerant of that kind of risk when they’re young.”
But rules built into myRAs offer investors some options. At any time, account holders can roll over their myRA funds into a Roth IRA offered by private investments firms, where you can continue to make contributions. Also, the funds are rolled over automatically after 30 years or when the account value reaches a maximum balance of $15,000.
Steve Rosen: 816-234-4879