We know about traditional IRAs and Roth-IRAs, but what is a myRA? myRA is a new government-backed retirement account. Last year, President Obama asked the United States Department of Treasury to create a new form of retirement account that could be used as a “starter” account for low and middle-income Americans who don’t have access to employer-sponsored retirement plans.
The program is not really designed to be your only form of retirement account, but a stepping stone towards start saving for retirement.
How Does myRA Work?
myRA works in a similar fashion as a Roth-IRA in which all contributions are made after taxes, and withdrawals are tax free. Contributions are invested in a United States Treasury security, which means you never lose your contributions. The U.S. Treasury security earns interest at the same variable rate as the Thrift Savings Plan‘s (TSP) Government Securities Investment Fund.
This is a safe way to save for retirement, but it also means that the rewards are low. The average annual rate of return for this fund over the ten year period of December 2003 and December 2013 was 3.39%.
These returns are better than having your money in a savings account, but not better than investing in index mutual funds. However, you can lose your money investing in index mutual funds, which is not the case when investing in TSPs.