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WHAT YOU NEED TO KNOW ABOUT MYRA

What Are MyRAs, and What Purpose Do They Really Serve, Especially for those Nearing Retirement Age

DANIEL A. DEBRUYCKERE
LONDONDERRY NEW HAMPSHIRE ESTATE PLANNING ATTORNEY

Many of us watched President Obamas State of the Union address and we paid close attention to his plans to create the new myRA retirement account. Its goal is simple: to help millions of Americans begin their efforts of building a nest egg. Within days, he signed a presidential memo directing the Department of Treasury to create the government-backed retirement accounts. But what are they and what purpose do they really serve, especially for those nearing retirement age?

We went straight to the White Houses website

for more information and here is what we found. And this is especially The first question is who is eligible for the myRA. important: while Theyre being targeted towards the millions in private retirement low and middle income households who may not accounts of any have access to employer sponsored retirement size can come with plans. From a different perspective, that covers a host of around half of all American workers and the vast administrative majority of workers in part time positions. For its expenses, the part, the White House says it will aggressively" myRAs will be free encourage employers to offer the program. For those employers, theyll be of any fees. happy to know that they wont have to contribute to the accounts nor will

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they be tasked with managing them. Instead, a pilot program is being put into place that will better streamline the process in its entirety. Once the program has been fully implemented, anyone who has direct deposit for their paycheck will be eligible to sign up, according to the U.S. Treasury. It should be noted that around half of all American workers have no savings or preparations in place for retirement. The president described it as a starter savings account geared towards low to middle income workers. MyRA is similar to the traditional Roth IRA. It allows workers around the country to invest money after tax and withdraw the money in retirement tax-free. The big difference in terms of its similarities to a Roth IRA is that the savings are safer because theyre backed by U.S. Treasury bonds. This provides investors a bit of peace in their decisions. The accounts are voluntary and are available to married couples whose modified adjusted gross incomes are no more than $191,000 and to individuals earning up to $129,000. All workers may invest in the accounts, including those who would like to supplement an existing 401(k) plan.

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The accounts will solely invest in government savings bonds. They will also be backed by the U.S. government, meaning that savers can never lose their principal investment. Not only that, but workers will be able to maintain their accounts should they change jobs or if they wish to contribute from multiple part time jobs. They will also be able to withdraw their contributions at any time without penalty. However, anyone who withdraws the interest they earned in the account before age 59 1/2 will get hit with taxes and a possible penalty, just like a Roth IRA. And this is especially important: while private retirement accounts of any size can come with a host of administrative expenses, the myRAs will be free of any fees. "This deals with the small saver problem," said David John, senior strategic policy adviser at the AARP Public Policy Institute. "Very often the administrative costs of those tiny accounts actually eat into the principal." The White House said the accounts will earn the same rate as the Thrift Savings Plan's Government Securities Investment Fund that it continues to offer to its federal workers. That fund earned around 1.5 % in 2012, and had an average annual return of 3.6% between 2003 and 2012, according to the White House. Once a participant's account balance hits $15,000, or the account has been open for 30 years, the account automatically converts to a private sector

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Roth IRA, where the money can continue to grow tax-free. Workers will have the option to switch to a Roth IRA at any time. Initial investments can be as low as $25 and workers can contribute as little as $5 at a time through automatic payroll deductions. Like a traditional Roth account, savers will be allowed to contribute up to $5,500 a year under current limits. With an average 2% interest rate, anyone who contributes, say, $100 a month would accumulate around $6,300 in savings after five years, including around $300 in interest. Thats not substantial, but its a start and of course, those closer to retirement can opt for more aggressive efforts. Theres no risk with these accounts, which is another benefit. Will this ultimately solve the retirement savings crisis? Of course not, but retirement advocates are hopeful that the new savings program is an important step in the right direction. It wont fix the reality that millions of Americans have no retirement savings at all, but again, its a start and an incentive. Is this a last opportunity for those nearing retirement? Maybe. The voluntary nature provide flexibility and as many near retirement, they often are working with the one goal of covering the bases for their future. Many have long since paid their mortgage, they may have minimal credit card

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debt and typically, their kids are grown and their own. Still, critics insist the retirement savings gap wont be met with this program because of the voluntary nature and the fact that investments go to low-return Treasuries. They serve a very important purpose and for many, its the only option they have. If youd like to learn more about how this might play into your own retirement or how to include it in your will and overall estate planning efforts, contact us today.

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About the Author


Daniel A. DeBruyckere
Attorney DeBruyckere approaches each challenge not just with solid expertise, but also with a passion for helping others plan well for the future. As a husband with three children and two grandchildren, its his own family experience that provides the motivation to ensure all of his clients are well protected. Besides his extensive background in the issues he specializes in, Dans clients find that he genuinely cares about them, and that he pays attention to the details that matter to each person and their families.

EXPERIENCE Attorney Daniel A. DeBruyckere has been practicing law in New Hampshire and Massachusetts since 1998, and has helped hundreds of clients with their estate planning and elder care isssues. He is very well respected in the area of estate planning, probate, trust administration, elder law issues, and business planning. Admitted in Massachusetts and New Hampshire, Attorney DeBruyckere is a former adjunct faculty member of the Massachusetts School of Law and is a member and past president of the Greater Salem Bar Association. He is also a member of the Essex County Bar Association, Massachusetts Bar Association, New Hampshire Bar Association, as well as a member of the National Association of Elder Law Attorneys. EDUCATION Attorney DeBruyckere is a graduate of Southern New Hampshire University, summa cum laude, and Massachusetts School of Law, cum laude. He served as editor of the Massachusetts School of Laws Law Review and was a regional finalist in the American Trial Lawyers Association Trail Advocacy Competition.

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What You Need to Know About MyRA

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