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By Jason Stipp and Christine Benz | 02-05-2014 01:00 PM

Perks and Problems With the New myRA

These accounts have benefits for savers who are just getting going, but most will need a bigger toolkit for retirement, says Morningstar's Christine Benz.

Jason Stipp: I'm Jason Stipp for Morningstar.

President Obama announced in his State of the Union address a new type of retirement savings account, the myRA. Here to offer an overview of that account and her take on the pros and cons is Morningstar's Christine Benz, our director of personal finance.

Thanks for being here, Christine.

Christine Benz: Jason, good to be here.

Stipp: Let's start with the basics of these accounts. Can you explain the structure of them, and how they work?

Benz: A good way to think about them, Jason, is that they are Roth IRAs with training wheels. In fact, they're technically classified as Roth IRAs.

The idea is to get people who do not have access to company retirement plans saving and investing. The idea is that the money will go in through payroll deduction. People will be able to start contributing at very small levels.

People who maybe have only $25 or so to invest are going to be shut out from a lot of investment houses. The idea is to have them be able to put money to work, start saving, and accumulate a little bit of a nest egg, and then they can proceed to invest in actual securities once they've amassed a little bit of a sum.

Stipp: You mentioned that these are essentially like Roth IRAs. What does that mean from a tax perspective?

Benz: It means that you put aftertax dollars into the account, your money compounds on a tax-free basis, and then you're able to take tax-free withdrawals.

Another thing to note about this, as is the case with Roth IRAs, you're able to withdraw your contributions at any time and for any reason without any strings attached.

Stipp: There are limits on how much you can put into a Roth IRA. Will there also be limits on how much you can put into this type of account?

Benz: Yes. In fact, any contributions that you make to this myRA will count against your Roth contributions. So, you're able to contribute $5,500 per year if you're under age 50 and $6,500 if you're over age 50.

Stipp: You mentioned that these are like Roth IRAs with training wheels. What do you mean by that? Is it the types of investments that you go into?

Benz: That's the key difference. Any money within these accounts is going to be invested in government bonds with maturities of four years or more. The difference, though, versus investing in government bonds [outside of a myRA] where you have interest rate risk is that these will be guaranteed bonds. So, people will not have the chance of losing principal, but nor will their money grow at a rate that it might in higher-returning securities.

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