The myRA retirement savings plan is a new option now available for employees who don’t have access to an employer-sponsored plan. It has many limitations compared to traditional employer sponsored plans but may be a good alternative for small businesses that cannot afford to make matching contributions or administer a retirement savings plan. Here’s how the myRA works. Employees create an account on their own through the myRA website. Then they provide their employer with a form indicating how much money they would like deducted from their paycheck and deposited into their myRA account. The employer is not involved in administering any part of the plan other than deducting the myRA contribution from paychecks. The employee owns the account and they take it with them if they get a new job. The myRA account is also treated as a Roth IRA for tax purposes so employers don’t have to worry about deducting the funds from an employee’s paycheck on a pretax basis. So, the burden on the employer is minimal.
There are also many drawbacks to the myRA. Employees must invest in a United States Treasury bond, which is low risk but offers very small returns compared to other types of investments. Once the balance in the account hits $15,000, employees must roll over the account into a private sector Roth IRA. And, employers are not allowed to make any type of matching contribution. So, this option is best for employees who are new to saving for retirement and plan to make small investment contributions from each paycheck.
It’s a good idea to review all types of employer-sponsored plans before recommending employees open a myRA account. Many employer-sponsored plans including SIMPLE IRA’s and SEP IRA’s are easy to administer and they allow employees to have a range of investment options. Employers also have the option to make a matching contribution. So, overall the myRA is best for employers who want to see their employees save something for retirement but don’t have the resources to offer an employer-sponsored plan.