myRA Shut Down By The Federal Government - What This Means And Alternatives

Back in 2014, the federal government set up the myRA program. This was a government-sponsored savings plan that allowed users to put away a bit of each of their paychecks for the future. It stopped taking new deposits on Dec. 4, 2017.

The myRA program was intended as a retirement savings vehicle for low-to-moderate earners in the workforce. There was a concern for the 50 percent of Americans who had no access to an employer-sponsored retirement plan. Additionally, many individual retirement account providers and other investment vehicles may require that workers invest hundreds or thousands of dollars to start.

It was hoped at the time myRA would bridge the gap for these folks and at least let them get started toward saving for the future.

Why Did myRA Shut Down?

In late August 2017, the Treasury Department announced the myRA program would end, and as noted above, the program stopped taking deposits in early December. There is some question as to why the Trump administration decided to do this.

Some have argued the program itself was a governmental overreach. Others complained it was sparsely used.

There were only about 20,000 accounts that had an average of $500 saved. Additionally, 10,000 accounts had no balance. Furthermore, the only investment option was U.S. Treasury bonds, which have not returned much in recent years. Those who invested in mutual funds or ETFs would likely have done much better.

What To Do With myRA Now

Those who have funds in a myRA account will need to take a couple of steps to ensure they maintain their money and owe no taxes. The myRA program was actually a Roth IRA program, which meant that the money that was invested was taxed on the front end. All gains are tax-free within the account as long as withdrawals take place after age 59.5.

To transfer the funds from myRA, it's necessary that investors open up another Roth IRA account. Account holders can open up a Roth IRA with a local banker or broker. They could also look to open an account with an online brokerage. Depending upon their level of comfort with the investing world, these investors could choose to use a full-service brokerage. Those who are more sure of themselves would likely do better using a discount brokerage that charges low fees on trades. After opening up a new Roth IRA, investors would have to transfer the money from the myRA account to their new account.

Retirement Planning Without myRA

Just because the myRA program is going away, it doesn't end retirement planning for all. It will still be possible to invest through government bonds. It will also be possible to invest in stock funds that have the opportunity for more impressive growth over time. Additionally, since the myRA accounts were Roth accounts, there will be no real change to the tax treatment of the investments.

Some discount brokerages will waive account minimums and some other fees as long as investors make a minimum investment each month. If, for example, a person utilized myRA by investing $50 a month, he could also have the same amount deducted from a checking account each month to keep their level of investment stable. This is only one more step than having an automatic deduction from each paycheck. The end of myRA does not mean the end of retirement planning.