The ‘myRA’: A Cheap Alternative To 401(k)s, Pensions?

President Barack Obama outlined a new retirement savings plan during his State of the Union speech designed for people whose employers do not offer pensions or 401(k) investments.

The new plan, named the “myRA,” is designed as a low-cost, low-entry fee plan to get people thinking about their financial futures. J. Michael Collins, the director of the Center for Financial Security at the University of Wisconsin-Madison, said the myRA is invested in government bonds, which are less risky than stocks but offer smaller returns. Workers can also take the accounts with them if they switch jobs.

Still, Collins said the new plan is inexpensive: “It’s a very very low cost fund,” said Collins.

After meeting with human resources to begin a payroll deduction, an employee can begin a myRA with only $25. After that, as little as $5 per pay period can go into the fund.

Collins said the low initial costs are an incentive to get even low-wage earners saving. But he said employees still need to take the initiative.

“These will not be automatic,” said Collins. “So the employee is going to have to talk to their employer and get these set up. So we will not see huge participation rates for that very reason.”

After an account reaches $15,000, Collins says myRA holders can then shift their money to a traditional IRA that might carry more risk, but offer higher returns.