Introducing myRA: Free retirement plan

WASHINGTON -- The Treasury Department said Wednesday that it has launched the myRA retirement program nationwide. The myRA, a government-backed retirement plan first announced by President Obama in 2014, is a form of the Roth IRA, which allows workers to save their after-tax dollars for retirement. It's aimed at overcoming obstacles that keep some workers from saving for retirement, especially those who have a low income or who lack an employer-based retirement account. The myRA charges no fees, is low-risk and convenient.

By allowing people to set up automatic contributions, the program is meant to make it easier for people to save, officials said. And contributions can be small, as little as a few dollars. The accounts have no minimum balance.

"One thing we know is that when people start saving, they'll continue," Treasury Secretary Jack Lew said in a call with reporters. "The challenge is to create the habit of saving in the first place."

People also don't need to worry about losing money, because their savings would be stored in an account where their principal is backed by the U.S. government. The plans will store people's savings in low-risk investments where the money can grow at a conservative interest rate.

Workers can contribute to their myRA accounts through automatic deductions from their paychecks, checking or saving accounts and even from their tax refunds. Like a regular Roth IRA, workers contribute up to $5,500 a year or $6,500 a year for people 50 and older.

Thirty-one percent of workers have no pension or retirement savings, according to a Federal Reserve report released earlier this year. And about half of all workers participate in a retirement plan, according to the Bureau of Labor Statistics.

For many workers, the biggest obstacle is gaining access to a retirement plan. Only 31 percent of low-wage workers had access to a retirement plan through work this year, compared with 90 percent of the high-wage earners, according to the bureau. And 38 percent of part-time workers had access to retirement benefits through work, in contrast to 80 percent of full-time workers who did.

The myRA program is intended to help close that gap. But the accounts, which officials described as "starter accounts" for people who aren't saving for retirement, don't offer a long-term solution. Savers can set aside a maximum of $15,000 in a myRA before the cash needs to be rolled over to a private sector Roth IRA, where they would find more investment options. And people can't use the accounts indefinitely. They need to roll the money over to a Roth IRA after being in the program for more than 30 years. (The option of transferring savings to a private-sector Roth IRA is available at any time.)

As with a traditional Roth IRA, people must be earning taxable income if they want to use the accounts, which are available to workers earning less than $131,000 a year or married couples earning less than $193,000 a year.

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This story was originally published November 4, 2015 at 8:22 PM with the headline "Introducing myRA: Free retirement plan."