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Details on how to open and fund myRAs, a US Treasury- administered Roth-IRA variant

On its website, the U.S. Department of the Treasury has provided more details on a retirement plan option it will administer directly for employees of private sector companies. It’s called the myRA (my Retirement Account), it’s a type of Roth IRA aimed at employees with no other retirement plan, and it’s invested in a unique U.S. Treasury security.

RIA observation: Although Treasury materials consistently describe myRAs as a new type of Roth IRA, IRS hasn’t issued guidance of any sort addressing this new variation. It appears as if Treasury will be the exclusive provider of information about this new retirement avenue.

Background on Roth IRAs. A Roth IRA is an individual retirement account (IRA) that is designated as a Roth IRA when it’s established. (Code Sec. 408A(b)) It’s treated as a traditional IRA except to the extent that special rules apply to it. (Code Sec. 408A(a))

An individual can make annual nondeductible contributions to a Roth IRA in amounts up to $5,500 (for 2015) (plus an additional $1,000 for those 50 and older), or 100% of compensation if less, reduced by the amount of contributions for the tax year made to all other IRAs. For 2015, the allowable contribution phases out ratably (in $10 increments) over the following levels of modified adjusted gross income (MAGI): for joint filers, $183,000 to $193,000; for married persons filing separately, $0 to $10,000; and for single taxpayers and heads of household, $116,000 to $131,000. (Code Sec. 408A(c))

Qualified distributions from Roth IRAs aren’t included in income. These are distributions made after the five-tax-year period beginning with the first tax year for which the taxpayer or the taxpayer’s spouse made a contribution to a Roth IRA established for the taxpayer, including a qualified rollover contribution from an IRA other than a Roth IRA, and that are made: (1) on or after attaining age 59 1/2; (2) at or after death (to a beneficiary or estate); (3) on account of disability; or (4) for a first-time home purchase expense up to $10,000.

Distributions that aren’t qualified distributions are treated as made first from contributions to all of an individual’s Roth IRAs and are nontaxable to that extent. Distributions in excess of contributions are taxable, and the amount includible in income is also subject to the 10% early withdrawal tax unless an exception applies. (Code Sec. 408A(d))

Background on myRAs. In his 2014 State of the Union address, President Obama promised that he would take executive action to create myRAs, a “starter” savings accounts that would be available through taxpayers’ employers and backed by the U.S. government. MyRAs were described as being simple, safe, and affordable starter savings accounts to help low- and moderate-income taxpayers save for retirement. The President subsequently directed Treasury to effectuate this program (see Weekly Alert ¶  2  02/06/2014). Treasury issued some preliminary promotional materials on myRAs in May of 2014 (see Weekly Alert ¶  21  05/22/2014).

Now, Treasury has launched a multi-faceted website offering more detailed information, including how to actually sign up and get going on retirement savings through myRAs.

What is a myRA? In essence, a myRA is a government-administered Roth IRA authorized to hold only one type of investment, described as a “new United States Treasury security which safely earns interest at the same variable rate as investments in the government securities fund for federal employees.” The latter fund is described as having an average annual rate of 3.39% in the 2003—2013 period. The myRA holder pays no fees for maintenance of the account.

RIA observation: The reference to the government securities fund appears to be a reference to the G Fund, i.e., the Government Securities Investment Fund, which is one of the investment choices for federal employees’ thrift savings plans. On the federal government’s thrift savings plan (TSP) website ( ), the G Fund is described as investing exclusively in a nonmarketable short-term U.S. Treasury security that is specially issued to the TSP. The earnings consist entirely of interest income on the security. The payment of G Fund principal and interest is guaranteed by the U.S. government, and, as such, the G Fund investment is not subject to credit (default) risk. The G Fund interest rate calculation is based on the weighted average yield of all outstanding Treasury notes and bonds with 4 or more years to maturity. As a result, participants who invest in the G Fund are rewarded with a long-term rate on what is essentially a short-term security.

A myRA is subject to the same rules that apply to private Roth IRA, including the MAGI-based eligibility for contributions, maximum annual contributions, and tax treatment of distributions.

MyRAs belong to their owners and are not associated with any employer. This way savers can continue to use the same myRA account even if they move to a new job. They just need to set up direct deposit with the new employer. And if savers have more than one job, they can request contributions to be set up through each employer (although total contributions from multiple sources can’t exceed the Roth IRA annual contribution limits).

Who can open a myRA? Currently, myRAs are available only individuals who work for an employer that offers direct deposit and is able to direct a portion of their paycheck to their myRA account. Treasury says that in the future it will open up the myRA to others (presumably to self-employeds and employees that don’t work for a company that offers direct deposit).

How to open a myRA and contribute to it. The only way to open a myRA is on Treasury’s website. The individual then starts funding the account by submitting a direct deposit authorization (provided by Treasury) to his or her employer. Contributions in the amount indicated by the employee are made each pay period and are direct-deposited into the employee’s myRA. The funds are then invested in a new type of U.S. government security designed for myRAs.

Automatic myRA rollover to private Roth IRA. Participants can save up to $15,000, or for a maximum of 30 years, in their myRA account. When either of these limits is reached, the myRA will have to be rolled over to a private sector Roth IRA. A rollover to the private sector allows savers to continue to grow their savings past the maturity of their myRA starter savings account.

Treasury says savers also can choose to roll over their account balance into a private-sector Roth IRA at any time, and promises to release more information about rollover to the private sector in the future.

What’s in it for an employer? Employers that don’t offer any kind of retirement plan may want to look into promoting myRAs to employees. It’s a retirement plan option that costs nothing for participating employers, since they don’t administer employee myRA accounts, contribute to them, or match employee contributions. Each payday, a participating employer simply facilitates a payroll deduction from the employee’s paycheck to the designated myRA account.

A separate section of Treasury’s myRA website features an employer page that carries a variety of materials that companies can use to encourage employees’ myRA participation. These include: a poster to hang in the workplace, a double-sided brochure that can be printed or shared electronically with employees, a web banner directing employes to, for use on a company intranet site or other internal communication channels, and FAQs that can be printed or emailed.

References: For Roth IRAs, see FTC 2d/FIN ¶  H-12290  et seq.; United States Tax Reporter ¶  408A4  et seq.; et seq.; TG ¶  8601  et seq.

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