If your employer does not offer a retirement savings plan, you may wonder how you will ever be able to save for retirement on your own. You may not know how to get started, let alone how to save properly. There is a relatively new plan developed just for people like you. It is called a myRA Savings Plan, and it may be just the thing you need to get your nest egg started for retirement.
The myRA Savings Plan also has some very beneficial tax advantages as well. It is part of the plan to encourage Americans to start saving for retirement on their own, instead of depending entirely on Social Security. Kenneth M Perkins is a tax professional in South Boston, VA, and he can help you run through the many tax advantages of saving for retirement, including the myRA Savings Plan.
Some Background on the myRA Savings PlanThe myRA Savings Plan is a political animal. It was developed by the Obama administration. They recognized that many Americans are struggling to save for retirement on their own, especially if their employer does not offer a savings plan. Now, the program is in full force as of early 2015. It started as a small pilot program, and has now been opened up to the entire nation.
These accounts specifically target low- and middle-income families whose employers do not offer a way to save for their future. That also includes part-time workers as well, but any worker can use this account, even if their employer does offer a plan. However, there are income limits that you must fall under to utilize the plan--$129,000 for individuals and $191,000 for couples.
There are no fees associated with the plan, and they use federally backed securities (government bonds) as the major savings vehicle. That means that they will not have the higher returns associated with most 401K accounts or traditional IRAs, but they will be much safer, so there is little risk of losing your entire retirement nest egg. Right now, however, the return is only about 2 percent, but it was roughly 5 percent before the financial crisis, so there is hope of it moving back upward. As interest rates rise, these returns will rise as well.
Essentially, the account is a version of a Roth Individual Retirement Account. You invest after-tax dollars and then withdraw the earnings later in retirement tax-fee. This account is unique because you withdraw the funds at any time without facing the large fees and penalties are associated with early withdraw in most retirement accounts.
Like other more traditional retirement plans, individual savers can contribute up to $5,500 in a single year. Keep in mind that this $5,500 limit applies to all retirement account in total. That means that you cannot contribute the full $5,500 to one account and then contribute another $5,500 to another retirement account.
The myRA Savings Plan is a great way to start saving, but you will not get the same tax deduction that you would get if you contributed to a traditional IRA. However, for lower income earners that the program is trying to target, the tax deduction for contributing will not be as much. That means that missing out on this deduction may not have much financial impact in the long run.
In addition, the myRA Savings Plan is meant to be a stepping stone to a larger retirement savings plan. The total of the plan cannot exceed $15,000, which means you may need to roll it over into a different plan once you hit that mark. You can only have one myRA, even after you hit the $15,000 mark—there is one plan available for every American.
One of the perks of contributing to the myRA plan is that you may be eligible for the Savers Tax Credit. This is a relatively new incentive program to get Americans to participate in this plan by offering a tax credit for their contribution. Of course, this credit can lower your tax bill while also encouraging you to save for retirement.
The Savers Credit allows you to take a credit for a portion of the money that you put into your myRA account. This credit also applies to other contributions to retirement accounts as well. You can get a percentage of the first $2,000 that you put into an account, and that percentage will depend on your income. However, this credit is only available for those who make under $30,000 as individuals, $45,000 for head of household, and $60,000 for married couples (in 2015). The percentage varies from 10 percent to 50 percent.
There are many tax advantages to saving for retirement, and your tax professional can walk you through the tax benefits of each type of program to suggest a plan that will lower your tax bill while also encouraging you to save the maximum amounts for retirement. Kenneth M. Perkins can help you with this process. Click the Contact button below to get started or use the profile link to learn more about Kenneth.
Kenneth M Perkins CPA/PFS