myRA: A smart first step in investing for teens

Young workers may want to invest in my Retirement Account or “myRA,” a retirement savings options for workers who do not have a retirement plan.

It’s hard for teenagers to imagine retirement much less take the steps to actually set money aside for a stage of life that is more than 30 years away. However, the ideal time to start saving for retirement is when workers are in their teens or early 20s; at that age, they are capitalizing on the power of time to increase the value of their investments. Thirty years of compound interest will be the key factor in significantly increasing the value of a young person’s retirement fund.

The challenge is that most employment opportunities for young adults do not offer a retirement benefit plan. While the timing is perfect to start a retirement account, the opportunity to do so seldom exists in entry-level positions.

That’s why it is wise for young adults to take matters into their own hands. The U.S. Department of the Treasury developed myRA (my Retirement Account) to provide “a simple, safe and affordable new retirement savings option for people who don’t have access to a retirement savings plan at work or lack options to save.”

The myRA has several advantages: There are no start-up costs, no fees, no complicated investment options, no minimum contribution requirement and no minimum balance. Individuals can contribute whatever amount – $2, $20 or $200 – that fits their budget as well as choose how often they contribute. The account always stays with the owner which is an advantage for young people who may change jobs or have multiple jobs.

Contributions are invested in U.S. Treasury bonds, and because they are backed by the U.S. Treasury, the account carries no risk of losing money while it safely earns interest. Investors can withdraw their contribution at any time tax-free and without penalty. It is important to understand that in exchange for security, investment returns will likely be low. Young people may want to use myRA as a financial stepping stone and once they have a steady income stream, they may want to transfer to a private-sector IRA with a wider array of investment options with higher rates of return.

Individuals can fund their myRA account through a direct deposit from their paycheck, through a savings or checking account (recurring or a one-time contribution) or by directing all or some of their federal tax return to their myRA account.

While there are numerous other ways to save for retirement, the myRA is an easy first step for teens and young adults who have limited funds to contribute or are unsure how to invest. Account holders have the ability to view and manage the account 24/7.

Individuals can contribute a maximum of $5,500 annually and can rollover their account to a private-sector Roth IRA at any time; owners must rollover to a Roth IRA once their account reaches $15,000. As with any investment, those considering opening an account are encouraged to learn more so they fully understand how myRA works.

For more information on youth money management, check out the Michigan State University Extension 4-H Youth Development website, contact your local MSU Extension office or go to eXtension’s Personal Finance page.

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