Update: In the summer of 2017 the IRS discontinued the MyRA retirement plan. See my article on this.
The IRS has just made the MyRA more accessible than ever!
There are significant tax advantages for family child care providers to set up an IRA for their retirement savings. However, many in the child care field do not contribute to an IRA, primarily because of their low profit.
The myRA is the government’s attempt to make it easy and cost-free for many providersto set up 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.
The latest news is that the IRS has announced that anyone can set up a myRA for themselves without having to participate through an employer plan.
Previously family child care providers could only contribute a myRA through their spouse’s employer.
Now any eligible provider can establish and contribute to a myRA on their own, without any employer involvement.
This means you can set up a recurring or one-time contribution to your myRA from your checking or savings account. This is a big step forward in making the IRA accessible to more people.
The myRA is intended to encourage low to middle income people to start contributing to an IRA.
Here’s how it works.
You are eligible to contribute to a myRA if your income and your spouse’s gross income is less than $191,000. If you are single, you must earn less than $129,000.
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 3.19% over the last ten years.
You can contribute as little as $25 to get started and add to it with as little as $5. You and your spouse can contribute a maximum of $5,500 per year (or $6,500 if you or your spouse is age 50 or older). Once the account reaches $15,000 you will have to roll it over to a private 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.
The myRA is not tied to any job, so if you quit child care and take another job, the account stays with you.
It costs nothing to set up a myRA. You can decide how much to set aside on a regular basis each month or only make contributions when you want.
How can you open a myRA?
Go to www.myra.gov for more information or call 855-406-6972.
This new retirement saving option is good news for everyone. Hopefully, it will encourage more providers to take advantage. With no fees, it’s a no-brainer!
Although the interest earned on a myRA is currently relatively low, it’s a great place to start if you haven’t already established an IRA.
Tom Copeland – www.tomcopelandblog.com
Image credit: Department of US Treasury
For more information about IRAs, see my book Family Child Care Money Management and Retirement Guide.