The concept of a “myRA” account was introduced by President Obama in his State of the Union address on January 28, 2014. Clients may hear of this and want to know about it for themselves or their children.
What is it?
The myRA is a savings plan similar to a Roth IRA. It is designed to allow lower-income workers to have some savings in a tax-preferred savings mechanism.
The contributions are contributed after tax and withdrawals of principal are in after tax dollars. The earnings in the plan are not taxed currently. Any earnings on the contributions are taxable if withdrawn before age 59 ½, similar to a Roth IRA. Contributions can be made by direct deposit in amounts from $5 and up, though the initial contribution must be at least $25.
The details are still being hammered out. However, it is expected to be up and running by the end of 2014. The advantage of the myRA is that it is invested in a fund of U.S. government securities and backed by the full faith and credit of the U.S. government. The account cannot decrease in value. The account will have no fees of any kind.
The account may be transferred to a Roth IRA of the same individual at any time. The account must be transferred or converted to a Roth IRA at the earlier of the time it has $15,000 or when it has been in existence for 30 years.
Why use it…or not?
This account is not designed for those of substantial means. It will be a quick, easy way for those with low earnings to save some money safely without any fees. However, the account may not grow as quickly as other accounts that take risk by being invested in equities.
How will distributions be taxed?
While details have not been completely hammered out, it is assumed that distributions will be taxed just like with a Roth IRA.
This account will not be appropriate for most clients. However, it may be something of interest for their children or grandchildren, especially when they first enter their earning years.
Stephen C. Hartnett, J.D., LL.M.
Associate Director of Education
American Academy of Estate Planning Attorneys, Inc.
9444 Balboa Avenue, Suite 300
San Diego, California 92123
Phone: (800) 846-1555
www.aaepa.com
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