With a MyRA, You Can Save and STILL Have a Life in Your 20s

By Sarah Brenner, IRA Technical Expert
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An article titled “If You Have Savings In Your 20s, You’re Doing Something Wrong” has recently gone viral. The article, which got over two million likes on Facebook, suggests that saving for your future in your twenties is a bad idea. It suggests that if you are in your twenties, you would be better off going out, spending money and enjoying life rather than saving for the future. Unfortunately, this is far from the only article lately that has been encouraging young savers to make some poor savings decisions.

No one can argue that if you are in your twenties, you face big savings challenges. This is a generation dealing with record-setting student loans, high housing costs and stagnant wage growth. It’s hard to save for retirement when you are worried about next month’s rent. However, where the much-discussed article goes wrong is with its all-or-nothing approach. It is possible to save for your future and still have a life. There is nothing wrong with starting small when you are young. When it comes to retirement savings, just a small amount contributed early can make a big difference later. For twenty-somethings looking to pay the rent, enjoy life and still save for retirement, there are options. A small salary deferral to a 401(k) or contribution to an IRA is worth considering. Also worth exploring is a new offering on the retirement savings scene, the myRA.

MyRAs are a new retirement savings option aimed at new and/or small savers. These accounts, established in 2014, are Roth IRAs, but come with a few twists. If you are a young saver just starting out in the workforce with a modest income, the myRA offers several benefits. If you need funds to pay for an unexpected expense, like a car repair or a security deposit on an new apartment, you can withdraw contributions from your myRA at any time without a tax or penalty. There are low minimum contribution limits. This eliminates a barrier that small savers often face. While many financial organizations require initial contributions of several hundred dollars to open an IRA, myRAs can be opened with an initial contribution as low as $25. Future contributions, in the form of payroll deductions, also can be as low as a few dollars a paycheck. You actually can launch your retirement savings with contributions that are about the same amount as you would spend on one large frozen coffee drink. Another benefit is that it costs nothing to open the account and there are no maintenance fees charged.

Currently, the only way to open a myRA is through an employer who offers direct deposit of the employees’ paychecks. If your employer does, the Treasury Department has made a letter to explain myRAs and has direct deposit forms available that you can use to give to your employer. The Treasury Department is hopeful that the program will be expanded to both the self-employed and employees without the direct deposit option in the future.  There is only one investment option, a government bond portfolio that will earn interest at the same rate as the Government Securities Investment Fund found in the Federal Thrift Savings Plan. MyRA balances are backed by the full faith and credit of the United States and are guaranteed to never decline in principal value.

MyRAs are subject to all the normal rules for Roth IRAs, including annual maximum contribution limits, the Roth IRA MAGI (modified adjusted gross income) contribution limits and the Roth IRA qualified distribution rules. You can roll over MyRA funds at any time to a regular Roth IRA. When your account balance reaches $15,000, or when you have held a myRA for 30 years – whichever is first – you will be required to roll over the balance to a regular Roth IRA.

It does not have to be all or nothing. With a myRA you can have fun in your twenties and save for a retirement too. A myRA lets you save smaller amounts so you still have enough money left for expenses like rent or student loans and also going out and enjoying life. To learn more or establish a myRA visit the Treasury Department’s website, myRA – my Retirement Account | Home.

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