Update: In the summer of 2017 the IRS discontinued the MyRA retirement plan. See my article on this.
It’s an unfortunate fact that many family child care providers are not saving enough money for their retirement, even though Individual Retirement Accounts (IRA) have been around for a long time.
Although there are significant tax advantages to contributing to an IRA (See my article “The Magic of an IRA”), many people still do not participate.
They put other spending priorities first, they don’t understand the value of establishing an IRA, or they don’t know how to go about setting one up.
The MyRA is the government’s attempt to make it easy and cost-free for many providers to set up an IRA.
The MyRA is directed at people who aren’t currently covered by an employer-sponsored retirement plan. It is intended to encourage low to middle income people to start contributing to an IRA.
There are no fees to establish or maintain a myRA and there is no risk you will lose money! The myRa has a low $25 minimum contribution requirement.
Here’s how it works.
You can contribute to your myRA if your are single and your profit is less than $132,000 If you are married, your profit and your spouse’s gross income is less than $194,000.
The myRA will be invested in a Roth IRA and will earn interest at the same rate as investments in the U.S. government securities fund now available to federal employees. This fund has had an average annual return of 3.39% for the ten-year period from 2003 to 2013.
You can contribute as little as $25 to get started and add to it with as little as $5. You can contribute a maximum of $5,500 per year (or $6,500 if you are age 50 or older). Once the account reaches $15,000 you will have to roll it over to a private Roth IRA.
Unique Rules of Roth IRA
A Roth IRA works differently than other IRAs. Money you contribute to a Roth IRA doesn’t reduce your taxable income (unlike all other IRAs). It earns interest tax-free. When you take money out of your Roth IRA after age 59 1/2, you won’t owe taxes on your contributions or the interest it earned.
You spouse can make contributions to your myRA by setting up a direct deposit plan through your bank.
The myRA is not tied to any job, so if you quit child care and take another job, the account stays with you.
Go to www.myra.gov for more information or call 855-406-6972.
This new retirement saving option is good news, particularly for those who have not yet started their own retirement account.
Although the interest earned on a myRA is currently relatively low, it’s a place to start if you haven’t already established an IRA.
Tom Copeland – www.tomcopelandblog.com