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 a brand-new IRA that you can set up if you are married and your spouse works for an employer. (Note: later you will be able to set up a myRA if you are single or your spouse is also self-employed.)
The new 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.
If your husband’s employer already offers a retirement plan or pension plan, he may still contribute to a myRA. However, the combined contributions to his myRA and his retirement account can’t exceed the regular IRA contribution limits.
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 and stays with your spouse if he changes jobs.
Here’s how it works.
Your spouse can contribute to your myRA if your profit and your spouse’s gross income is less than $191,000.
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.
Your spouse can contribute as little as $25 to get started and add to it with as little as $5. He can contribute a maximum of $5,500 per year (or $6,500 if your spouse is age 50 or older). Once the account reaches $15,000 your spouse 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.
Your spouse will be able to make contributions to his myRA by setting up a direct deposit plan through his employer. He can establish how much money he wants taken out of each of his paychecks and it will be directly deposited into his myRA account.
The myRA is not tied to his employer, so if he changes jobs the account stays with him.
It costs nothing for his employer to set up a myRA. The company does not administer this plan, or contribute to it, or match your spouse’s contributions. Each payday the employer simply facilitates a payroll deduction from the employee’s paycheck to the designated myRA account.
How does your spouse open a myRA?
Go to www.myra.treasury.gov and fill out a direct deposit authorization form and give it to his employer.
You and employers can learn more about myRA by going to this website. Employers may also call 844-874-7590 for more information.
This new retirement saving option is good news for everyone. Hopefully, it will encourage more employers to offer it, and more employees to take advantage. With no costs to anyone, it’s a no-brainer!
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.
Remember, myRA’s are currently only available to those who work for an employer who does not currently offer a retirement plan. Self-employed providers will be able to set up a myRA on their own at a later date. I will write about this when it happens.
Tom Copeland – www.tomcopelandblog.com
Image credit: www.123rf.com
For more information about IRAs and retirement, see my book Family Child Care Money Management & Retirement Guide.