In his State of the Union address, President Barack Obama unveiled new plans to open up new IRA programs designed specifically for those older than 50. President Obama introduced the new plan, "MyRA," as a savings bond with no risk and a guaranteed return for what is put in.
The new savings bond plan comes at a time when less than half of Americans report that they have saved enough for retirement. While many collect Social Security later in life, the benefits are typically not enough to live on in retirement.
"Today, most workers don't have a pension," the president said in his speech. "A Social Security check often isn't enough on its own. And while the stock market has doubled over the last five years, that doesn't help folks who don't have 401(k)s."
The new program will be created by the Treasury Department. While the economy has seen major improvement since the height of the recession, many employees are still without retirement and pension plans that are necessary for comfortable senior retirement. As a result, the new plan intends to encourage more private sector savings outside the workforce.
By buying Treasury bonds, the government guarantees the principal amount, similar to a regular savings bond. There are similar advantages to MyRA as with a regular Roth IRA, including tax-free withdrawals. Contributions are not tax deductible, but all earnings made on the IRA are tax-free.
One reason Americans tend to not save enough for their retirement is because they feel they cannot afford to put aside money every month. Under the new IRA program, participants can start with an investment as low as $25 and contribute small amounts as low as $5 as they wish through payroll deductions. The fund is comparable to what federal employees are guaranteed with a Thrift Savings Plan Government Securities Investment Fund that earned 1.74 percent in 2013.
The plan is intended for those who make up to $191,000 per year and will allow a person to save $15,000 annually for 30 years before they need to switch to a private Roth IRA. IRAs are accounts that a person opens on their own to hold stocks and other assets for retirement. The IRA itself is not an investment and is not related to 401(k)s. Many people don't take advantage of IRA accounts because they can come with their own costs. The MyRA plan, on the other hand, will cost a person $7.50 per year to start saving.
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