[IMGCAP(1)]When President Obama announced the myRA program during his State of the Union Address this year, it likely raised several questions among those in the accounting community: What is this new program? How will it work? How does it compare to the retirement benefits businesses already provide to their employees? What do I need to share with my clients about this?
While the Treasury Department is still working out important details that will help solidify answers to these questions, there is information available now that accountants should know about the program and how it might complement existing 401(k) programs in the workplace.
What Is myRA?
According to a post on the subject on the White House blog, “myRA is a new type of savings account for Americans who don’t have access to an employer-sponsored retirement savings plan. Workers who sign up will be able to have a portion of their paycheck directly deposited into their myRA automatically every payday.”
From an eligibility standpoint, myRA is available to workers with household incomes of $191,000 or less who get paid through direct deposit. The initial investment can be as low as $25, employees can contribute as little as $5 each pay period, and the yearly contribution limit is $5,500 per year.
While the Treasury Department hasn’t yet indicated how strictly these limits will be enforced, myRA accounts must be rolled over to a private Roth IRA when the balance reaches $15,000 or the account has been open for 30 years. Employees will have the freedom to switch over to a private Roth IRA whenever they choose.
It’s also important for accountants to know that the Treasury Department strongly prefers that employers offer more robust retirement plans such as 401(k)s as they provide the opportunity for more meaningful retirement savings. The hope is that once employees experience what it feels like to build a nest egg through participation in the myRA program, employers may be inclined to create a 401(k) plan to enhance retention and recruiting.
How Will myRA Work?
The myRA program is expected to be structured as a Roth IRA that is invested solely in a special Treasury Security that will be developed only for use with the myRA program. The Treasury Department will contract with a Treasury Financial Agent to offer the accounts. These accounts will be held in a trust rather than a custodial account.
When employees decide to participate in the myRA program, they will open an account and submit routine direct deposit authorizations to identify the account to credit. This will be similar to how employers would handle payroll withholding by savings bond. It’s not something that is used frequently, but this is the model the government is following.
What Is the Effect on Business Owners?
Initially, the program will have very little impact on employers. When an employee decides to participate in the program, the employee will open an account and authorize an additional or “split” direct deposit where contributions will be remitted when payroll is paid. Because of this, it is possible that employers won’t know that the withholding is for a myRA account.
When the employee initiates the account with the TFA, the TFA will be responsible for tasks such as verifying identification, obtaining a W-9 and handling beneficiary information. The employer will have no responsibilities for determining whether the employee is eligible for the myRA account or whether the employee reached the maximum limit for Roth IRA contributions.
Because the contributions for myRA will be handled by direct deposit, accountants should encourage employers who don’t currently offer direct deposit to do so in anticipation of employee requests. If the employee is terminated or chooses to leave their respective job after opening a myRA account, there will be no effect on the business as the accounts will remain active in the name of the individual.
Advice for Accountants
Accountants should share this information with business owners and HR managers, and help them understand how the myRA program can complement the retirement benefits they currently offer. While employers won’t see the usual tax incentive or employee retention benefits typically enjoyed by offering retirement plans to employees, there is an opportunity for your clients to actively engage their employees about myRA and all available opportunities.
Doing so could position them well with employees who may switch their myRA account over to a Roth IRA at some point in the future and lead to added tax and retention benefits.
Mike Trabold is director of compliance risk at Paychex, Inc.