myRAs – An Alternative Retirement Plan for Small Business

It’s Small Business Week at The Slott Report with articles Tuesday, Wednesday and Friday dealing with the issues small business owners and their employees face and the questions they need answered.

• Click here to read Tuesday’s article on the advantages of a SEP IRA and if a small business owner still has time to set one up for 2014.
• Click here to read Wednesday’s article on 3 reasons to consider a 401(k) over a SEP IRA.

You can also use and search the hashtag #smallbusinessweek on Twitter to learn more about small businesses, their structure and how they deal with issues like retirement planning.

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By Beverly DeVeny, IRA Technical Expert
Follow Me on Twitter: @BevIRAEdSlott

myRAs are a retirement savings option for those who do not have a retirement plan at work or those who want to save only small amounts from their paychecks.

According to the website https://myra.treasury.gov/:

myRA is a simple, safe and affordable retirement account created by the United States Department of the Treasury for the millions of Americans who face barriers to saving for retirement.

You should set up a myRA if…

• You want to start saving for retirement
• You’re a wage earner without access to a retirement plan at work and
• You earn less than $131,000 per year (less than $193,000 per year if you’re a married couple filing jointly)

If the employer offers direct deposit of the employee’s paychecks and is willing to direct a portion of the paycheck to the employee’s myRA account, that is all that is needed. The employee goes on to the website above and completes the application form. They then receive their account number and can print out a form they need to complete and give to their employer authorizing the direct deposit to the myRA account.

There are no start-up costs and no annual maintenance fees. The account owner keeps everything that is earned in the account.  The accounts are guaranteed not to lose money and are invested in a U.S. Treasury security.

The accounts are a type of Roth IRA account. The individual must meet the income guidelines and cannot contribute more than $5,500 per year (individuals age 50 or over during the year can contribute an additional $1,000). Distributions of contributed amounts can be taken at any time, tax and penalty free. Earnings must be held for five years and until the individual is age 59 ½, dead, disabled, or the withdrawal is for a first-time home purchase (up to $10,000). When earnings are withdrawn early, they are subject to income tax and the 10% early distribution penalty, if applicable.

The funds in the myRA belong to the individual. The employer has no control or authority over the funds. They can be moved to a different Roth IRA account at any time. Once the myRA account balance reaches $15,000, they must be transferred to a regular Roth IRA account.