The best way for hourly or contract hospitality employees to save for retirement
Building retirement savings can be difficult for contract and hourly workers in the hospitality industry who don’t receive retirement benefits. These workers can open an IRA through a bank, but they may first have to save up the required minimum investment, and they may be charged fees.
To make it easier for hourly and contract workers to start saving for retirement, the U.S. Department of the Treasury offers a program called myRA that eliminates the cost and hassle of opening a retirement account. Participants open a Roth IRA retirement account and earn the same rate of interest as investments in the Government Securities Fund that federal employees have access to. As of May 2017, the annual rate of return was 2.25 percent. The Treasury Department backs the account and guarantees it will not lose money. There is no cost to set up the account, and there are no fees. There’s also no minimum balance, so people can start saving with any amount of money, no matter how small. And participants can withdraw their deposits at any time without paying a penalty or any additional taxes.
Participants have the option to set up direct deposit out of their paychecks by giving a form to their employer. Or, they can transfer money to myRA from a savings or checking account. People can also fund a myRA account from a tax refund by entering the myRA account information in the refund section of their federal income tax return.
myRA is meant to be a starter account. After the account balance reaches $15,000 or after 30 years, participants must transfer their money to a Roth IRA at a bank or investment company.
Roth IRAs like myRA offer an advantage over a traditional IRA for hourly workers who are beginning to invest. Workers pay taxes on their money before they invest it rather than deferring those taxes until retirement. This makes sense for people who currently are in a low tax bracket but who might have more income (and pay a higher tax rate) later in their lives. It allows them to reduce the total amount they pay in taxes over the course of saving for retirement and withdrawing their money.
As with any Roth IRA, there are eligibility restrictions for investing through myRA, although almost all hourly hospitality employees should easily qualify. The income limits for 2017 are $133,000 for a single person and $196,000 for someone who is married and filing jointly with a spouse. Those restrictions are unlikely to be a problem for hourly and contract workers unless they are married to someone with a much higher salary or have another significant source of income. There are also contribution limits. Participants can invest up to $5,500 a year if they are under age 50 or $6,500 a year if they are age 50 or above.
People can sign up at myRA.gov. Enrollment requires a social security number and a form of ID, which can be a driver’s license, state ID, military ID or U.S. passport. Enrollees are also asked to provide the name and birthday of the person they would like to inherit the account.