The newest retirement vehicle to roll out of Washington aims to get more people into the habit of saving for their retirement. NY1's Tara Lynn Wagner filed the following "Money Matters" report.
When it comes to saving for retirement, workers with access to employer sponsored 401k plans are more likely to save and save more. The problem is, according to Money Magazine Senior Writer Donna Rosato, half of Americans do not have them.
It's a reality the president addressed in this year's state of the union, announcing the creation of MyRA.
The new product, which operates a lot like a Roth IRA, requires a very low initial investment, as detailed in a video released by the U.S. Treasury Department.
"You'll be able to open an account with as little as $25 and contribute $5 or more every payday through automatic payroll deductions," explains Treasurer of the U.S. Rosie Rios.
Rosato says you'll have a hard time finding a private IRA that will take that amount.
"Typically, mutual fund companies offer IRAs that are at least a thousand dollars for required minimum," she says.
The money in the accounts is invested in treasury bonds and your contributions are backed by the federal government, meaning you won't lose your principal investment. You also won't lose value by having to pay high fees.
"There are no fees and savers will earn the same interest rate as federal employees for their retirement savings," says Rios.
The downside is that interest rate is actually really low.
"In the last five years treasury bond mutual funds have averaged about 1.5 to three percent. That's not big growth. Now in a traditional IRA or a traditional Roth IRA, if you are invested in a more diversified portfolio you can potentially have a lot more growth," says Rosato.
There's also a lot more risk should the market take a tumble.
Like a Roth IRA, you can withdraw the money you've contributed at any time tax-free, but touch the interest before you're 59 and a half years old and you'll pay taxes and a penalty.
The accounts are portable meaning they can move with you as you change jobs, but they are also finite. Once you've saved $15,000, you'll have to move the balance into a Roth IRA.
"It's not going to be enough to retire on but it's a start for a lot of people and it's a great supplement," says Rosato.
MyRA accounts should be available by the end of the year. For more information, visit treasury.gov.