Launched in 2015, the myRA program was designed to help workers who didn’t have access to a 401(k) save for their retirement. After pouring $70 million into maintaining the program, the U.S. Treasury Department recently decided to pull the plug on the myRA account.
Roughly 30,000 workers tucked away $34 million in savings in myRA accounts, and the question now is, What can they do with those funds? As the Treasury phases out the program, participants will need to make plans to transfer or close their accounts.
Rolling your myRA savings over into a Roth IRA would allow you to continue building your retirement nest egg, and that was where myRa accounts that got large enough would have been moved anyway. Here’s what you need to know about rolling over your funds.
How a Roth IRA Rollover Works
When you roll over a myRA account or other retirement assets, all you’re doing is transferring them to another qualified retirement account. Because myRAs are structured similarly to Roths, these funds can only be rolled into another Roth IRA.
It’s important to understand how a Roth differs from a Traditional IRA. With a Roth, your qualified withdrawals are always 100 percent tax and penalty free, as are withdrawals of your original contributions (not the interest income those contributions earned). Withdrawals from a Traditional IRA are taxed at your ordinary income tax rate, but you get the advantage of a tax deduction on your contributions.
There are two ways to roll over assets from a myRA account to a Roth IRA account. The first is a trustee-to-trustee transfer. Essentially, you ask your myRA plan administrator to transfer the funds directly to your new Roth IRA. The advantage is that no taxes are withheld from your transfer amount, and you don’t put yourself at risk for any tax penalties.
The other option is a 60-day rollover. If you go this route, the money in your myRA account would be paid to you in a check. You’d then have 60 days to deposit the funds into a Roth IRA. Ten percent of the interest that is included in your distribution is withheld for taxes automatically, which means you have to make up the difference when you put the money into your Roth if you don’t want to lose some of your retirement savings. Otherwise, that amount would have to be reported as taxable income. If you don’t deposit the interest portion of the distribution before the 60 days is up, the entire amount that your investments earned may be subject to taxes.
Needless to say, the trustee-to-trustee transfer is the better – and simpler – choice.
Choosing a Roth IRA Provider
You can schedule a transfer of your myRA balance to a Roth IRA at any time. Before you initiate the rollover, you’ll need to set up a new account with a different Roth IRA provider. There are several things you need to consider when choosing a provider, starting with whether there’s a minimum balance required for a Roth IRA rollover. According to the Treasury Department, about 20,000 myRA savers have a median balance of $500, and 10,000 account owners have made no contribution at all.
Many of the larger brokerages do require a certain amount of money for a Roth IRA rollover. At Vanguard, for example, you’ll need at least $1,000 to invest in one of its target-date funds. Most of its other funds require at least a $3,000 minimum investment. Charles Schwab also sets the minimum at $1,000. That doesn’t mean you can’t roll over your myRA if you have less than that, however. Betterment, for example, allows you to roll over funds with no minimum balance. Other no-minimum-balance providers include Merrill Edge, Fidelity, Scottrade and TD Ameritrade.
Aside from the minimum balance, you should also ask about the fees a Roth IRA provider charges. Individual funds you invest in may also have costs. Fees can nibble away at your earnings over the course of your lifetime. While you’re comparing fees, look at the investment choices a Roth IRA provider offers to make sure they match up with your risk tolerance and goals.
Some Accounts May Be Closed Automatically
If you have a myRA with a zero balance as of Sept. 15, the Treasury Department may automatically close those accounts beginning Sept. 18. If you recently set up a direct deposit to have money added to your account, you may want to consider canceling the deposits before they begin, so you don’t have to go through the extra steps of initiating a rollover. From there you can research Roth IRA providers and open an account to start building your retirement savings.