Monday, January 19, 2015

MyRA Lets Retirement Savers Get Started

Now that the “myRA” starter retirement account has gone live, a lot of people must be wondering, what’s the point of the new retirement vehicle? Indeed, there is no reason to think about the myRA if you already have an IRA. If you opened your IRA more than five years ago, you may not realize the fees savers face now when they open new IRA accounts. You can pay thousands of dollars in account maintenance fees during the first few years before your account reaches the threshold level, at least $10,000, where custodians begin to waive fees. Banks and fund managers were forced to raise fees on retirement accounts because of the abnormally low interest rates of the past six years. For people starting out their retirement savings, though, this is a psychological obstacle at least. Who wants to open a new savings account just to watch your balance dwindle for years because of fees that greatly exceed the interest you might earn? You can’t just plop $20,000 into your new IRA because tax rules don’t let you contribute that much all at once. So you how do you get started?

The myRA is an answer for that, a low-management retirement savings arrangement in which fees won’t wipe out all your earnings. It pays a low interest rate, but you wouldn’t earn much interest on the small balances in the account in any case. The important thing is that the myRA won’t erode your savings through fees. Of course, after a few years you will have saved enough that it will make sense to start actively managing your account, and that’s when it’s time to convert the myRA to an IRA.

As a transitional vehicle that might save someone a few thousand dollars over a period of a few years, the myRA might not seem that important. But if you look at it as a way to remove the largest obstacle that prevents people from getting started on retirement savings, then you realize how much of a difference it will make.