Do you offer retirement benefits to your employees? Retirement plans can be costly and time-consuming for employers, so many employees don’t have easy access to plans such as a 401(k). In an effort to solve this problem and enable all workers to save for retirement, the U.S. Department of the Treasury has created myRA.
As a small business owner, myRA just might fill the “retirement account” gap in your employee benefits package.
What is myRA?
myRA is basically a Roth IRA, guaranteed by the U.S. Treasury, and designed to encourage all workers to save for retirement. It is simple for individuals to set up, has no fees, and offers some income tax advantages.
As an employer, all you do is set up the payroll withholding for your employee’s contribution! No fees. No forms for the IRS. No retirement accounts to maintain.
Basic facts about myRA accounts
myRA has an easy-to-navigate website with all the details, complete instructions, and even a calculator to help your employees plan ahead. Here are some highlights about the myRA retirement account:
- To open an account, the worker’s income must be under $131,000 per year for single individuals and $193,000 for married couples.
- Contributions are capped annually at the same amount as traditional IRAs (e.g., $5,500 for 2016; $6,500 if age 50 or older).
- The maximum amount saved is limited to $15,000.
- The employee can open an account with a minimum of $25 and can set contribution amounts to any amount from $2 to $200 per pay.
- Contributions are set up electronically through payroll withholding, automatic withdrawals from personal savings or checking accounts, or income tax refunds.
- The contributions are made with after-tax dollars.
- All myRA account earnings are based on the fluctuating government interest rate, which averaged 3.19% for the past ten years.
- Workers also may earn tax credits by filing IRS Form 8880, Credit for Qualified Retirement Savings Contributions, if their income is within the set limits.
- Because the workers already paid income tax on their contributions to their myRA accounts, those funds can be withdrawn without any penalty or fees.
- Withdrawals of earned interest are penalized until age 59-and-a-half.
- The myRA account owner is not required to make withdrawals at age 70-and-a-half (unlike traditional IRAs).
How can myRA help you, the employer?
One of the challenges of running a small business is ensuring that employees feel appreciated and respected–and adequately compensated according to internal equity. Your time is limited, your funds are often stretched thin–and employee retirement plans tend to be costly in both time and money.
So, if you do not offer a retirement plan option currently, you now have good news for your employees! Chances are they do not know about the new retirement account from the U.S. Treasury and may feel grateful for information about myRA.
In addition to your good news for your employees, there is good news for you. With a myRA retirement account, employers pay no fees, keep no records, submit no tax forms, and make no decisions about investment types.
All you need to do is …
- … get the information to your employees. The website has tools for you to use, including presentations, handouts, sample emails, etc.
- … set up payroll withholding, if needed. If an employee sets up a myRA account and chooses to make contributions via payroll withholding, you will need to set it up in your payroll system.
If you already offer a retirement plan for your employees, myRA is not designed for your business. (For example, you might offer a Simplified Employee Pension (SEP).)
How can myRA help your employees?
Since less than 20% of small business employees have a retirement plan, myRA could be the simple, safe, and affordable choice for the 80% without a plan.
The website is again the best starting point with its FAQs. There is also a calculator that can help your employees set realistic savings goals.
All your employee will need is their Social Security number, government photo ID, and the name and birthdate of a beneficiary.
Once set up, the myRA account can travel with the employee if they happen to change jobs, or if they work only seasonally.
Lastly, the employee may be able to get tax benefits from their contributions, depending on their income. They will file IRS Form 8880 Credit for Qualified Retirement Savings Contributions with their annual tax return to get the credit.
According to Barbara Weltman of Big Ideas for Small Business,
“Whether myRAs will catch on for employers that can’t afford to offer qualified retirement plans remains to be seen. From the employee perspective, a myRA can’t hurt.”
When you need to withhold taxes, myRA contributions, etc., from employee paychecks, you need reliable, easy-to-use, online payroll software. Check out a free trial with Patriot Software today!