Just when you thought retirement accounts couldn’t get any more complicated, along comes the MyRA during the President’s State of the Union Address. So what in the world is a MyRA?? Well, little detail has been published thus far on the MyRA account but here is what we know: 

  • President Obama is directing the Treasury Department to create a retirement account targeted at the millions of low- and middle-income Americans who do not have an employer-provided retirement plan (401(k), SEP IRA, etc.).
  • Employers who currently do not offer retirement plans will be encouraged to offer the MyRA to all of their employees with the understanding the employer will not have to administer the plan or contribute to accounts.
  • As long as an individual’s income is below $129,000 per year and a couple’s income is below $191,000 per year, a person may invest in a MyRA account.
  • The account will function essentially as a Roth IRA, which allows savers to contribute after tax dollars then the savings can grow, and be withdrawn in retirement, tax free. However, the MyRA account will be backed by the U.S. Government and will function as a type of savings bond in which the saver can never lose their principal.
  • Workers will be able to keep their accounts as they switch from job to job and will also be allowed to withdraw their contributions at any time without penalty.
  • Investments to the MyRA can be made in increments as low as $5 if made via automatic payroll deductions and the annual limit on contributions is $5,500 (similar to the Roth & Traditional IRA limits).
  • Once a saver’s account reaches $15,000, or the account has been open for 30 years, the saver must roll the MyRA over to a “normal” Roth IRA and still be able to grow on a tax-free basis.
  • The MyRAs will earn a return equal to the rate as the Thrift Savings Plan’s Government Securities Investment fund that Federal workers have access to. That fund earned 1.47% in 2012 and had an annual average return of 3.61% from 2003 to 2012.

Sources-President Obama’s “State of the Union” address-January 28, 2014/Wall Street Journal- January 29, 2014

While the general premise behind establishing the MyRA is honorable, I’m frankly just not sure how much traction this new proposed program will have. The fact is, only one in 20 Americans who are eligible to make Roth IRA contributions actually do so on a regular basis (according to AARP). So unless the MyRA begins to automatically enroll savers into the program I seriously doubt the impact on American’s retirement savings will be dramatically affected. On top of that, the savings bond-like investment vehicle may actually encourage young people into low growth fixed income investments when they may have been better off having an opportunity for longer term growth potential in equities. The $15,000 forced rollover feature is a good one, in my opinion, as it will ultimately force the saver into choosing from other investment options that may offer a more appropriate long term strategy. 

Whatever your thoughts, the MyRA does actually sound as if it will be a reality very soon. The President is slated to implement this plan by executive order thus skipping the need for Congresses approval and a pilot program should be rolled out by year end.  

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

 

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