The federal government is now one step closer in getting into the Roth IRA business.
Holding true to President Obama’s directive, issued in January’s State of the Union Address, the Treasury department on Tuesday issued its final rules on the myRA retirement savings program.
Designed in part to motivate low-income earners without access to workplace retirement plans, contributions will be invested in new retirement savings bonds that earn the same annual interest as securities issued to the G Fund in the Thrift Savings Plan for federal employees.
The principal value of account holders’ investments will be protected.
Original discussions of the plan said accounts could be established for as little as $25, and wage deferrals could be as low as $5.
But the final rules did not specifically address original investment amounts, and only said that the Commissioner of the Fiscal Service, a designee of the Secretary of Treasury, will set the minimum amounts for initial contributions and additional contributions.
Earlier reports said that wealthier individuals making up to $129,000 and couples with $191,000 in income can also participate, but those specific limits were also not addressed in Treasury’s final rules.
But the rules are clear in defining the ultimate purpose of the program, which isn’t to address the investing needs of six-figure income earners, but rather to establish a “stepping-stone to the broader array of retirement products available in today’s marketplace.”
To that end, the account value is capped at $15,000, or 30 years, which ever comes first. At that point the account holder can transfer the funds to a commercial financial services provider.
They can also do so at any time, regardless of the account’s value.
The accounts boast zero start-up costs and no fees that are passed on to investors. Annual contributions are capped at the same level for standard Roth IRAs – $5,500.
Critics of the program have wondered about its overall utility, given the limitations on investment options offered.
The G Fund, the model for the new savings program, returned less than .25 percent in 2014. In 2013, it was 1.89 percent. Since April of 1987, it has yielded 5.54 percent, according to the Thrift Savings Plan website.
Individuals can create new accounts through a website hosted by Treasury. Employers can use the site to find education and marketing material to help build employee interest.