Now that the dust has settled a bit, here’s a quick breakdown of the newly-announced myRA based on the description “simple, safe and affordable starter retirement savings account”.
- Simple = Direct payroll deduction. myRA will be funded directly through paycheck withholding, likely using the same infrastructure used to buy savings bonds via TreasuryDirect. No employee match. No bank account required. One investment option.
- Safe = Government-backed principal protection. The only thing you can buy in the myRA is a security identical to the G Fund of the Thrift Savings Plan available to federal employees. First, it has a principal guarantee so that your balance will never go down. Second, it pays interest based on the weighted average of all treasuries with maturities 4 years or more (2.5% as of January 2014). So it has the higher interest you’d get from owning longer-term bonds without the risk of loss.
- Affordable = Low contribution requirements. Minimums of $25 needed to start, and $5 per paycheck for future contributions.
- Starter = Temporary and small. Must be rolled over to a “regular” Roth IRA held at a private custodian when the account value reaches $15,000 or after 30 years.
- Retirement account = Structured as a Roth IRA. The myRA is a Roth IRA with the US government as the custodian, as opposed to a private company like TD Ameritrade. Account grows tax-deferred, and qualified withdrawals at retirement are tax-free. Same contribution limits ($5,500 for 2014) and same income limits ($129k MAGI for single, $191k MAGI for couples in 2014).
I would also add that it is not available yet, and will only be coming to select employers in “late 2014”. The goal is to be available to all W-2 employees via payroll deduction eventually, but that is unlikely to be earlier than 2015. For a more in-depth discussion, I liked this article by Michael Kitces at Nerd’s Eye View.
Much like modern car manufacturing, this is an attempt at fashioning a “new” retirement vehicle using existing parts from other models. Why? The President had to piece this thing together using executive order instead of pushing new legislation through Congress.
Will myRA entice people who currently aren’t saving for retirement? I like the ease of paycheck deductions and the idea that you’ll never lose money. But the overall package just isn’t exciting enough. There is no buzz. People are not clamoring to sign up right away. Instead of just 4+ year Treasuries, it should offer both a principal guarantee and the highest interest rate of any US bond (30-year Treasuries?). Make it as attractive as possible.