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If you watched the recent #SOTU address (or even if you didn’t, I’m sure you heard about it), you probably heard President Obama talk about the new retirement savings plan: myRA. Heralded as not the end-all of retirement plans, but definitely a step in the right direction, the plan hopes to address the impending crisis of our generation: not saving enough for retirement. If you’re like me, you probably have a lot of questions about myRA. I looked into it and found some good info about it.

How is it going to work?

myRA will actually be quite similar to other retirement plans. You’ll enroll in the plan and set a contribution amount. With each paycheck, the amount you’ve pre-selected will automatically be pulled out and placed into your retirement fund. This fund will be administered by the US Treasury department and you’ll watch your money grow!

How is it like/not like other retirement plans?

The myRA retirement plan is actually quite similar to a Roth retirement plan. The key feature of a Roth plan is

that your money is first taxed and then placed into the account, where it grows tax free. You’ll pay no taxes if you withdrawal that money after reaching the retirement age (59 ½ years old). You can only contribute $5,500 each

year to the plan. With the myRA, it only takes $25 to open an account, and contribution amounts can be as little as $5.

Unlike other retirement plans, the myRA plan is backed by the US government and its value is guaranteed. Typical private sector retirement funds aren’t guaranteed and, as many of our parents and grandparents saw back in 2008, can lose value. The old saying goes, “more risk, more reward,” and that holds true with myRA. As it is not risky and won’t lose value, your balance won’t grow as much. Your funds in your account are invested in US government bonds, and you’ll expect to see an interest rate of 1-3%. That’s much lower than traditional retirement funds.

How long can I invest in it?

The same $5,500 per year max contribution limits apply. With myRA, you can hold onto your account for the lesser of 30 years or a balance of $15,000. Once you reach that point, your myRA will convert and roll over into a private sector Roth IRA (individual retirement account), which will basically be the same idea.

Isn’t this just like social security?

Now that you mention it, yes. The government takes money out of your paycheck and puts it into a retirement fund that you’ll get back later. Both pay measly returns off of which you probably won’t be able to support yourself. But seriously, I think this is actually a good idea. I’ve been saying for a long time that people need to save for retirement and not rely on the government. It is harder for lower income employees to set up retirement plans and so this is a no-brainer easy way for employees to save for retirement.

Should I open one?

No. myRA is definitely a great idea for people who never saved for retirement, and who have potentially already fallen behind. The no-risk feature is definitely a perk but with returns of 1-3%, YoPros (‘young professionals,’ hopefully that acronym is catching on?) can definitely do better. My retirement fund grew 20% last year. Although 2013 was a stellar year for the market, a good retirement fund should grow your money at least 5% per year. As most of us fall into the ‘young’ category of professionals, we’ve got time on our side, time to take more risks and allow any bad years to be offset by strong years.

myRA is sort of like a retirement plan on training wheels. It’s a good idea for people new to retirement and for those who won’t be able to contribute all that much. It’ll eventually convert into a regular Roth IRA anyways, so you might as well start with the real deal. (Ok, I realize that is slightly counter-intuitive, but for young professionals, there’s little reason not to start with the real deal). While most people won’t be able to retire off of their myRA, the idea is to get the accustomed to saving for retirement.

Saving for retirement is definitely a marathon, not a sprint, but much like a journey of 10,000 steps, the best way to begin it to take the first step!

Need a refresher on traditional retirement plans? Check out these other great articles:

Wait…I need to be thinking about retirement?

How should I invest my retirement fund?

Retirement vs. Emergency fund?