Great Federal Programs For Boosting Your Savings

The following is a post by MPFJ staff writer, Toi Williams, who is a professional finance blogger for MarketBeat. She has backgrounds in personal finance, sales, and real estate.

Millions of Americans are having difficulty saving for their future. According to a report published in Forbes, roughly 63 percent of Americans say they would have difficulty coming up with $1,000 to handle a financial emergency.

The struggles of such a large segment of the populace has prompted the federal government to find ways to help. Government agencies have developed a number of programs designed to encourage saving by people of all ages.

Here are several of the most popular programs.


Saving For College

If you are planning on paying for college in the future, you might want to take advantage of a 529 plan. A 529 plan is a tax-advantaged savings plan designed to encourage saving for college costs. The plans are authorized by Section 529 of the Internal Revenue Code and are sponsored by states, state agencies, or educational institutions. All fifty states and the District of Columbia sponsor at least one type of 529 plan.

There are two types of 529 plans available, both with considerably different features. The first type is a pre-paid tuition plan, which allows savers to purchase units or credits at participating colleges and universities to lock in the current price. The credits can generally be used to cover tuition and mandatory fees. There may be exceptions for other qualified expenses provided by the plan’s sponsor.

Pre-paid tuition plans often have an age or grade limit for participants. The payments made from the plan are often based on the age of the student and the number of years of college tuition purchased. Depending on the plan chosen, the student will receive a lump sum or installment payments to pay for their college costs.

The second type of 529 plan is generally known as a college savings plan. These plans establish an account for the purpose of paying the student’s eligible college expenses. All qualified higher education expenses are covered, including tuition, mandatory fees, covered required supplies, and room and board. There are generally no age limits or residency requirements for these plans. Withdrawals from college savings plans can generally be used at any college or university.

College savings plans invest in stock mutual funds, bond mutual funds, and money market funds on behalf of the account holder. The investments in mutual funds are not guaranteed by state governments and are not federally insured, so losses are possible. However, earnings in 529 plans are not subject to federal tax as long as the withdrawals are used for eligible college expenses. They may not be subject to state tax either.


Saving For Retirement

The federal government is also trying to help more people save for retirement, which is an important goal for our country. About half of U.S. workers don’t get a pension or 401(k) from their employers and millions of workers do not have any retirement savings at all. As of the end of last year, 68 percent of America’s workforce reported that they are not participating in an employer-sponsored plan.

The United States Department of the Treasury developed myRA to remove common barriers to saving for retirement for people who don’t have access to an employer-sponsored retirement savings plans. myRA is a Roth IRA retirement savings account with no start-up cost, no fees, no minimum contribution requirement, and no risk of losing money. The plan is meant to be a starter account for long-term retirement savings. The idea is that participants will graduate to IRAs and employer-sponsored retirement plans once they get their retirement finances started with the myRA.

To be eligible for myRA, participants must make less than $131,000 a year (or $193,000 for married couples). People can contribute up to $5,500 per year to their myRA account (or $6,500 per year for those age 50 and over). The account maxes out at a balance of $15,000, but participants can keep a lower balance for up to 30 years. If either of those limits is reached, the savings will be transferred or rolled over into a private-sector Roth IRA.

Contributions can be made by linking a checking or savings account to the myRA, transferring after-tax dollars from a paycheck, or directing some of their federal tax refund to the account. Initial myRA investments are set at $25 with subsequent contribution limits set at $5. Most of the participants using myRA make monthly contributions that average between $50 and $100. If a participant changes jobs, they can keep contributing to the same myRA account without interruption.

Contributions are invested in a new United States Treasury security that earns interest at the same variable rate as investments in the government securities fund for federal employees. The Treasury Securities Fund offered a return of 2.9 percent over the past decade, which is still better than a typical savings account. Participants can pull out the money contributed (but not the interest) at any time without penalty. Barring specific exceptions, participants can only withdraw the earned interest free of tax and penalty if they are at least 59-1/2 years old and made their first contribution to the account at least five years ago.


Investing In Securities

The TreasuryDirect program allows US individual investors to purchase Treasury securities directly from the U.S. government. Participants can choose from Treasury Bills, Notes, Bonds, Inflation-Protected Securities, and Series I and EE Savings Bonds. The TreasuryDirect website is run by the Bureau of the Fiscal Service under the United States Department of the Treasury.

The TreasuryDirect program eliminates many of the hassles that come from handling physical securities. The securities are held in the account in paperless electronic form. Because they are stored online, they cannot be forgotten or lost and heirs will be able to easily locate them in the future. According to the Treasury Department, there are billions of dollars in matured savings bonds outstanding that have yet to be redeemed.

Users can manage their savings portfolio online as their needs or financial circumstances evolve. From the website, participants can deposit money from their personal bank accounts or withdraw money from the TreasuryDirect account. To redeem the purchased securities, the user selects what securities they want to sell on the website and what account they would like the proceeds to be deposited in. There are no redemption limits to worry about and no fees for purchases.

TreasuryDirect’s security system is top of the line, requiring user names and passwords as well as security codes from a plastic card that the Treasury provides for the account. The money in the account is backed by the full faith of the U.S. government. The website also allows the transferring and gifting of savings bonds, which is a great way to get children and grandchildren on the path to saving for the future.

How about you all? Have you used any of these programs? 

Please share your experiences by commenting below! 

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