Lower Earners Just Lost a Key Retirement-Savings Option

When it comes to retirement savings, the statistics are often dire: One in three Americans has no money set aside for the future, while more than 40% of baby boomers nearing retirement have yet to begin building a nest egg. These trends helped spur the myRA.

Introduced during the Obama administration, the myRA was designed to help workers without access to a 401(k) plan save money for retirement. Since the average American can't survive on Social Security benefits alone, especially with the typical recipient collecting just $16,320 a year in payments, a lack of independent savings could spell serious trouble for innumerable seniors. The purpose of the myRA, therefore, was to give workers a much-needed push toward personal savings.

But now the Department of the Treasury has announced that the myRA program is officially going away, which means that countless savers will either need to find new homes for their money, or figure out another way to amass some retirement cash. The decision was fueled by a general lack of participation coupled with growing expense. In fact, the program is said to have cost $70 million since 2014, and, according to the department, would cost $10 million a year going forward.

How the myRA worked

The myRA was similar to the Roth IRA in that contributions were made with after-tax dollars. (Contributions to traditional IRAs, by contrast, are tax-deductible.) Participants under 50 were allowed to put up to $5,500 a year into a myRA, while those 50 and older could contribute up to $6,500 annually. Single tax filers earning $133,000 a year or less were eligible for the program, as were couples filing jointly earning $196,000 or less.

The myRA, however, had its drawbacks. For one thing, account balances maxed out at $15,000, which meant that savers hoping to amass a larger sum would be limited. Another issue with the myRA was that all funds were invested in savings bonds backed by the U.S. government, which meant that while participants bore no risk of losing principal, their growth potential was extremely stunted.

What the myRA did, however, was increase awareness about the importance of saving for retirement. And now that it's gone, those who previously relied on the program need to find ways to set aside money for the future.

Other ways to save

Those who were otherwise counting on the myRA to save for retirement need not fear, because even though the program is going away, there's still the option to fund a nest egg via a traditional or Roth IRA. Both accounts offer the same annual contribution limits as the myRA, but there's no cap on how much your balance can actually grow. So rather than be limited to a total of $15,000, you can continue maxing out your contributions year after year, and enjoy whatever growth your investments generate.

And speaking of investments, unlike the myRA, traditional and Roth IRAs offer a wide range of options for where to put your money: You can invest in stocks, bonds, or a combination of both. If you play your cards right, you stand to gain far more than what you'd get via government-backed savings bonds.

Now if your earnings are such that you would have been eligible for the myRA, it means you're also eligible for a Roth IRA. And if you go that route instead of opening a traditional account, not only will your money get to grow tax-free, but you also won't pay taxes on whatever funds you withdraw in retirement. Furthermore, Roth IRAs are not subject to required minimum distributions, so if you don't need to access your money right away in retirement, you have the option to let it sit and grow indefinitely. You can even pass a Roth IRA on to your heirs, which makes it a useful estate-planning tool.

Rolling over your current myRA

If you were already saving with a myRA, you should be getting a notice informing you that you'll need to roll your funds into a Roth IRA. Keep in mind that if that money isn't rolled over directly, you'll have 60 days from the time you receive your distribution to deposit that cash into another qualified plan. Otherwise, you might face certain tax liabilities.

Although losing the myRA might come as a blow to some workers, the good news is that there are plenty of other options for building a nest egg and growing your savings. It pays to compare the different IRAs out there and figure out which type of account is right for you.

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