What is an IRA?
It is an Individual Retirement Account and myRA was designed for people without access to
employer-sponsored retirement savings plans and for people looking for a simple, safe, and
affordable way to start saving for retirement, myRA is not intended to replace existing
retirement savings options, including employer-sponsored retirement plans, it is meant to be an
addition to your savings/retirement funds. MyRA is a starter account for long-term retirement
savings. As you accumulate savings in your myRA account, you will be in a better position to
eventually transition to private-sector providers, where you have other investment options and
opportunities to continue to grow your savings. MyRA makes it easy and affordable to start
saving for retirement, even if you can save only a little bit right now. There are no fees to
maintain your account and no minimum amount is required to open it. You choose how much
and how often to save, and your money is safe. And if unexpected expenses come up, you can
withdraw your myRA contributions at any time.
Unlike other Roth IRAs, myRA has features designed to make it a starter retirement
savings account. myRA is invested in a single United States Treasury retirement savings bond,
which will not lose money and is backed by the United States Treasury. Money that you put in
your myRA will earn interest until your account reaches $15,000 or 30 years from the day you
first fund the account (whichever comes first). The account balance will then be transferred to a
private-sector Roth IRA, where you can continue to invest your savings and make additional
contributions. You can also transfer or roll over your myRA to a private-sector Roth IRA of your
choice at any time.
Basic tax attributes
Amounts can be withdrawn from a Roth IRA at any time, but special tax rules apply.
Contributions (the amount you put in) to a Roth IRA are made after-tax and can be made at any
time during the calendar year (or by the due date of the owner’s tax return for the year, not
including extensions). Because contributions are after-tax, they will not be taxed again when
they are distributed (taken out), and these non-taxable contributions will be treated as coming
out of the Roth IRA before earnings which may be taxable depending on whether the distribution
is qualified.
If a distribution is "qualified," any earnings in the Roth IRA are not taxable when they are
distributed. A distribution is "qualified" if it is made at least 5 years after the owner’s first
contribution to the Roth IRA (counting from January 1 of the year of the first contribution), and
the distribution is made:
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after the owner is age 59½
for a qualified first-time home purchase (up to $10,000 lifetime limit);
after the owner is disabled; or
to a beneficiary after the owner’s death or disability.
If a distribution is not "qualified," any earnings in the Roth IRA are taxable. In addition, if the
owner is under age 59½, a 10% additional income tax on any earnings will apply unless an
exception is available, including exceptions for payments:
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due to disability or after death;
paid at least annually in equal or close to equal amounts over your life or life expectancy (or the
lives or joint life expectancy of you and your beneficiary);
for qualified higher education expenses;
for health insurance premiums after the owner has received unemployment compensation for
12 consecutive weeks;
for a qualified first-time home purchase (up to $10,000 lifetime limit);
made directly to the government to satisfy a federal tax levy;
up to the amount of deductible medical expenses; or
that constitute a qualified reservist distribution, for a member of a reserve component called to
duty for more than 179 days.
How do I open up a MyRA account?
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From your paycheck. You can set up automatic direct deposit to your myRA with your employer.
From a checking or savings account. You can set up recurring or one-time contributions to
your myRA from another account, such as your bank or credit union savings or checking account.
From your federal tax refund. When you file your taxes, you can direct all or part of your federal
tax refund to your myRA.
Eligibility for saver’s tax credit
Individuals who contribute to a Roth IRA with modified adjusted gross income (AGI) below
certain levels for the year are eligible to claim a saver’s tax credit for their contributions. The AGI
eligibility levels for 2015 are:
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$61,000 for married couples filing jointly,
$45,700 for heads of household, and
$30,500 for singles and married individuals filing separately
These modified AGI thresholds may be adjusted in later years to reflect cost-of-living increases.
Eligible individuals can take the tax credit by filing Form 8880 with their tax return. The chart
below shows the amount of the saver’s credit for different kinds of filers for 2015:
Married Filing Jointly
Income Range
Saver’s Tax Credit
$0-$36,500
50% of first $2,000 deferred by each spouse
$36,501-$39,500
20% of first $2,000 deferred by each spouse
$39,501-$61,000
10% of first $2,000 deferred by each spouse
Head of Household
Income Range
Saver’s Tax Credit
$0-$27,375
50% of first $2,000 deferred
$27,376-$29,625
20% of first $2,000 deferred
$29,626-$45,750
10% of first $2,000 deferred
Single/Others
Income Range
Saver’s Tax Credit
$0-$18,250
50% of first $2,000 deferred
$18,251-$19,750
20% of first $2,000 deferred
$19,751-$30,500
10% of first $2,000 deferred
Annual contribution limits
There is an annual dollar limit on how much can be contributed to a Roth IRA (taking into
account contributions to other Roth and traditional IRAs). For 2015, the limit is the lesser of
$5,500 ($6,500 if age 50 or older by the end of the year), or an individual’s taxable compensation
(including a spouse’s taxable compensation if a joint filer). Employer contributions under a SEP or
SIMPLE IRA plan do not affect this limit. These annual dollar limits may be adjusted in later years
to reflect cost-of-living increases.
Contribution limits based on income and filing status
Eligibility to contribute to a Roth IRA for a year may be limited depending on the owner’s (and
spouse’s, if applicable) modified AGI for the year, and the owner’s tax-filing status. For 2015, the
eligibility to contribute depending on filing status is as follows:
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For single, head of household, or married filing separately (if did not live with spouse at any time
during the year), eligibility begins to phase out (that is, the annual contribution limit begins to be
reduced) at a modified AGI of $116,000, and completely phases out at $131,000.
For married filing jointly or qualifying widow(er), eligibility begins to phase out at a modified AGI
of $183,000, and completely phases out at $193,000.
For married filing separately (if lived with spouse at any time during the year), eligibility begins
to phase out at a modified AGI of $0, and completely phases out at $10,000.
These modified AGI thresholds may be adjusted in later years to reflect cost-of-living increases.
Avoiding excise tax on excess contributions
Generally, a 6% excise tax applies to any excess contribution to a Roth IRA. However, any
contribution that is withdrawn on or before the due date (including extensions) for filing a tax
return for the year is treated as an amount not contributed. This treatment only applies if any
earnings on the contribution are also withdrawn. The earnings are considered earned and
received in the year the excess contribution was made.
Distributions after an owner’s death
If a Roth IRA owner dies, the minimum distribution rules that apply to traditional IRAs apply to
Roth IRAs as though the Roth IRA owner died before his or her required beginning date.
Distributions to beneficiaries follow the following rules:
Generally, the entire interest in the Roth IRA must be distributed by the end of the fifth calendar
year after the year of the owner’s death unless the interest is payable to a designated
beneficiary over the life or life expectancy of the designated beneficiary.
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If paid as an annuity, the entire interest must be payable over a period not greater than the
designated beneficiary’s life expectancy and distributions must begin before the end of the
calendar year following the year of death. Distributions from another Roth IRA cannot be
substituted for these distributions unless the other Roth IRA was inherited from the same
decedent.
If the sole beneficiary is the spouse, he or she can either delay distributions until the decedent
would have reached age 70½ or treat the Roth IRA as his or her own.
Other Concerns
You can set up payroll direct deposit with your employer to continue to fund your myRA from
your paycheck. Your myRA account is not linked to any employer, so it stays with you when you
move to a new job. And if you have more than one job, you can contribute through each
employer (you should make sure that total contributions from multiple sources don’t exceed the
annual IRA contribution limits). You can also fund your myRA by setting up recurring or one-time
contributions from a checking or savings account or by directing all or part of your tax refund to
your myRA at tax time.
Any interest earned in your account can only be withdrawn without tax or penalty five years
after January 1 of the year of your first contribution, and you are 59 ½ years old or meet certain
conditions, such as using the funds for the purchase of a first home. For example, if you’ve
contributed $5,000 and earned $500 on top of that in interest, you could withdraw the $5,000
without incurring taxes, but you may or may not be able to withdraw the additional $500
without potentially incurring taxes (depending on your circumstances).
“Transfers” and “rollovers” refer to methods by which you can move your myRA account balance
to a private-sector Roth IRA. You can choose to transfer or roll over your account balance at any
time during the life of your myRA. If you don’t transfer or roll over your account yourself, once it
reaches its maximum balance of $15,000 or its 30-year lifespan, your account balance will be
transferred automatically into a private-sector Roth IRA. You will be notified in advance of
your myRA approaching one of the account limits, so that you have the opportunity to provide
instructions for the transfer of the account balance to your private-sector Roth IRA.
If your total contributions across all your IRAs, including your myRA, exceed the allowable annual
contribution limit, you may be required to pay a 6% tax on the excess contributions and
attributable (related) earnings. However, you can avoid having to pay the excess contribution
tax, if you take the excess contributions (and attributable earnings) out of your myRA by your tax
filing deadline (including extensions).