How Does the New “MyRA” Account Relate to Self-Directed IRAs?

Account Relate to Self-Directed IRAsFirst announced by the President in his 2014 State of the Union Address, the MyRA (short for “My Retirement Account”) is intended to provide American workers with a new option in saving for retirement.

The MyRA is a new type of savings bond account that investors can make deposits to, in relatively small amounts via payroll deductions, in order to begin accumulating a retirement nest egg. In relation to existing retirement savings options, perhaps the best way to think of the new MyRA is that it’s most similar to a Roth IRA, although there are some very significant differences.

Contribution Limits. While the MyRA represents a new option for retirement savers, the contribution limits are identical to those of a traditional or Roth self-directed IRA. Eligible individuals can choose whether to invest in an IRA and/or a MyRA, but the total amount of contributions for the 2015 tax year cannot exceed $5,500 (or $6,500 for taxpayers age 50 or over).

Account Investments. As noted above, contributions to a MyRA will be directed to a savings bond instrument that is guaranteed to never decline in value. While this has some appeal to many investors, the flipside is that a saver will never be able to earn significant returns on their investment either. With a self-directed IRA and there is a much greater potential for gains over time.

Account Size Limitations. The MyRA was created to fill a specific need – giving lower income workers (whose employers don’t offer a 401(k) plan) access to an easy to understand retirement option. But the MyRA is not intended to be a long-term solution. Once an account reaches $15,000 in value, the owner must roll over their account into a traditional or Roth IRA.

Account Fees. There are no fees for opening or maintaining a MyRA. This is different from a traditional or Roth self-directed IRA, but not surprising given that the only investment choice for a MyRA account holder is the savings bond.

Choice of Custodian. At present, if you want to open a MyRA you must do so through the treasury.gov website, and you will be directed to a custodian for your new account. This saves you the effort of having to find a suitable custodian, but it also means that you can’t choose between different options.

Contributions. The initial contribution to open a MyRA is just $25, and subsequent contributions (which are made via payroll deductions) must be at least five dollars. This makes investing in a MyRA fairly easy and automatic, but it also precludes the account holder from depositing any additional funds into their account to further boost their savings. With a self-directed IRA the account holder has a much higher degree of control and when they make their contributions.

Distributions From a MyRA. Similar to a Roth IRA, account holders contribute after-tax money, and any permitted withdrawals can be made on a tax-free basis.

The MyRA may be a good first option for some people to get into the habit of saving for retirement. But a self-directed IRA offers so many more options and so much more flexibility that it’s certainly the better choice for long-term savings.

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