A New Investment Option

Denise Trowbridge

A new retirement account run by the U.S. Department of the Treasury has arrived. It's called the myRA, and it's designed for people who have little or no retirement savings, and those who don't have access to a 401(k) or retirement plan through their jobs.

President Barack Obama outlined plans for the myRA in his 2014 State of the Union address, and the accounts became available - after a small trial run - last November.

The myRA is essentially a Roth IRA. It even has the same rules: You can contribute up to $5,500 each year, or $6,500 if you're 50 or older (as long as you earn less than $131,000 a year if single, $193,000 if married). You don't receive an upfront tax deduction as with a traditional IRA, but the earnings grow tax-free and can be withdrawn tax-free in retirement or if used for college expenses.

Yes, you can open a Roth IRA at most U.S. banks and brokerage houses, but there's a big advantage in choosing the myRA that makes it a boon to low-income savers, new savers and young savers alike.

Many banks and brokerages require at least $1,000 to open an IRA or a Roth IRA, and many charge fees if your balance is below $5,000 or $10,000. If you don't have a lot saved, it can be discouraging to watch fees eat up your hard-earned cash.

Enter the myRA. It's cleverly designed for the beginning saver. It charges no fees and has no minimum account balance. You can deposit any amount, no matter how small. You can contribute to the plan by payroll deduction, from a checking or savings account, or direct-deposit your tax refund.

The maximum investment in a myRA is $15,000. Once the balance reaches that point, the money must be moved to a bank or brokerage house. This is by design. The myRA helps people with nothing save enough money to open an IRA or a Roth. With $15,000 in hand, you will exceed the minimum required to open an account through traditional channels, and you will likely avoid the fees and penalties charged on lower balances.

All myRA deposits are invested in a treasury bond similar to the Government Securities Investment Fund, which is the same option offered to federal employees through the thrift savings retirement plan. Right now, that investment is paying a little more than 2 percent interest - much better than even the highest-yielding savings account - although it's not as lucrative as stocks. Unlike stock investments, myRAs are guaranteed not to lose money. You can't lose your principal.

Critics have complained about the lack of investment choices in the myRA plan, but it's still a better option than a savings account - many of which pay a paltry 0.05 percent interest these days - for those who are risk-averse and want a safe way to grow wealth.

MyRAs aren't right for everyone, but they could benefit a working adult who has little or no retirement savings - or working teenagers. Anyone with earned income can contribute, including your teen who has a job flipping burgers. Early deposits will pay off at age 65, because the younger you are when you save for retirement, the bigger the nest egg.

We all know Americans don't have large enough nest eggs. About half of people 55 and older have no retirement savings in a 401(k) or IRA. About 30 percent of those folks have nothing to draw from in old age - no pension, no other savings - according to a study by the U.S. Government Accountability Office. At the same time, about 55 million Americans - including 40 percent of full-timers and 60 percent of part-timers - don't have access to a retirement plan at work.

For more information about myRA, go to myra.gov or treasurydirect.gov.

Denise Trowbridge is a self-professed money geek who writes about personal finance, banking and insurance for The Columbus Dispatch, bankrate.com and middlepathfinance.com.