New myRA Retirement Accounts Quick Summary

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.

Comments

  1. Hmm, I’m clamoring to sign up. I really like the idea that my balance can never decrease.

  2. This looks pretty boring because the principal guarantee would only appeal to me if I was close to retirement age, but then I would have a lot more than 15k in my account if I was close to retirement age.

    From the website it looks like this is designed for people who don’t qualify for a 401(k) from their employer, so the only real benefit of this is that it goes though payroll instead of them having to manually save the money every pay period.

  3. A weak effort in the right direction although I am not a big fan of these payroll savings plans which allow my employer to know how much of my salary I am saving. I like IRAs which are confidential and allow the widest range of investment possibilities. I hate the fact that the contribution limits for 401ks are so much higher than for IRAs, and I do not understand why this plan has a $15,000 limit. It is like the low annual limits on purchasing Savings Bonds. It seems we are constantly being pushed away from safe investments and encouraged to gamble on Wall Street.

  4. I’m curious about the eligibility rules if one already contributes to a deductible or Roth IRA. If it turns out to be a backdoor way to get another $15000 into my Roth IRA, I’ll definitely do it.

    • Immigrant in CA says:

      From the article cited here:
      “- Since the MyRA is just a Roth IRA, it won’t be possible to contribute cumulatively to a MyRA and a Roth IRA. It’s the same limit, so contributions to one count towards the limit of the other as well. Also, since the MyRA is just a Roth IRA, the maximum annual contribution to a MyRA will ostensibly still be the same Roth IRA annual contribution limit of $5,500 in 2014, or $6,500 for those over age 50 who are eligible to make the $1,000 catch-up contribution.”

      So it’s essentially useless for you and me Steve.

    • Steve — According to the Nerd’s Eye View article linked by Jonathan above, MyRA is likely to share the individual saver’s existing $5,500 annual IRA contribution limit (since it will effectively be a Roth IRA). So it probably won’t help you contribute more than that (the $15,000 limit is a separate threshold that determines when a rollover must take place).

  5. Donald — It’s got a $15,000 limit because the plan is squarely aimed at the sizable percentage of the population that has zero individual retirement savings (and who do not currently have access to a 401k style plan at work). MyRA is designed to encourage them to start accumulating savings, and will then act as a bridge over to a private sector IRA.

    I would go so far as to say that if you are reading this blog, the plan is not designed for you. You will find it deficient and of little interest for various reasons already pointed out. But you are not among the target population of non-savers who both lack a tax-qualified retirement savings plan at their employer, and who will not (or cannot, due to a relatively higher minimum investment) open up their own private sector IRA.

  6. As early as now, I have also started building up my savings retirement account. I’m proud that it has been a year since I started. Its one of my steps achieved in reaching financial freedom.

  7. Mickey Blue Eyes says:

    I’m looking forward to the ObamaRA and predict it will go about as well as ObamaCare.

    I’m looking forward to the stories of the legislation REQUIRING people buy an ObamaRA, else we will be fined (read “taxed”). This will of course be legal, thanks to the SCOTUS saying the government can force us to buy a consumer product that we don’t want.

    I’m looking forward to the stories of companies dropping their 401(k), et al., plans to avoid being fined/taxed, ala ObamaCare.

    I am sure that the ObamaRA will be treated the same as Social Security. That is, the money you send to the government is considered general revenue and used to pay for current beneficiaries. Also your ObamaRA account does not actually belong to you, like a private retirement account.

    I am sure the next step will be to tax, if not eliminate, existing retirement plans, e.g., 401(k), 403(b), 457, and IRAs, in favor of the ObamaRA. Whatever it takes for the government to take more control over our lives to make it easier to scare us to vote Democrat.

    • ^ Willful ignorance. There’s plenty about which to criticize the administration, but not everything is a shady socialist plot. The plan closely resembles proposals that have been advanced by centrist and even conservative public policy organizations for many years.

    • Big Mouthy says:

      Mickey, put our biases aside, there are some big and valid criticisms toward our current retirement and investment structures. To start with, it’s too complicated and riddled with inefficiencies (too many middle men) and unnecessary design to further confuse people. Unless the private sector step up and come up a simple and easy to follow retirement schema that majority of less sophisticated workers can accept, government will have to step in to do it. Without such action either in private or public sector, the unbalance of society will escalate to a huge disestablishing force. In other words, we are in this together, whether you like it or not.

      Maybe you are right, that all government does is to “robin hood” some people’s hard earned cash and give them to some people who may or may not deserve such money. But in government’s eyes, they don’t really favor one or another, they simply do it to maintain social stability. Of course some may argue that in the end, the ruling class always came out on top. But a balancing act is always needed when a large portion of society is falling way behind. All governments have to do it one way or another, or else they face revolutions which really is a bottom to top correction of wealth distribution anyway. The only difference here is that revolution is violent, taxes is mostly peaceful.

    • Apart from calling it the ObamaRA, I agree with you Mickey.

      I’m looking forward to hearing “this system only works if we all participate” followed by executive order to make us all participate.
      I’m looking forward to hearing “ordinary people should not be put at risk by bad actors on wall street at the expense of taxpayers, so starting today, all tax advantaged retirement accounts will have to invest 15% into safe investments” read – G Fund.
      I’m looking forward to hearing “based on the success of our previous plan, and the safety and security so many have experienced, we are upping the required tax advantaged investment level to 50%. Now if you like your current investments, you can keep your current investments”
      I’m looking forward to reading “The president signed an executive order today that will convert all tax advantaged retirement accounts into the safe MyRA introduced in 2014. All existing holdings will be liquidated and the funds used to buy safe government bonds”

      Look, somebody has to replace the taper and since the BRICS and MINT don’t seem to have an appetite, that patriotic duty is going to fall to the Merican people. And they will probably greet it with thunderous applause.

      BOHICA

    • Mickey, if you want to be cynical and conspiratorial about it, the proper route would be to call this a way to trick the public into buying Treasury securities as the Fed pretends to taper off their quantitative easing. I don’t actually think that’s the reasoning behind MyRA, but it’s far more plausible than the creative material you posted.

    • Mickey Blue Eyes – generally I consider people who read this sites, and sites like this, as smarter and better informed (at least financially) than most. Then I read comments like yours.

      All this is – and all it CAN be, given it is being done by executive order – is a re-imagining of existing structures, namely the Roth IRA and government bonds. It’s targeted towards those who might have trouble reaching minimum requirements that places like Vanguard and Fidelity have (thus the rollover requirement when reaching the relatively low total of $15,000), and those who are afraid their money will disappear (thus the funding with government bonds, so there is no loss in principal).

      These paranoid fantasies of yours really have no place in a serious discussion.

      • “It’s targeted towards those who might have trouble reaching minimum requirements that places like Vanguard and Fidelity have (thus the rollover requirement when reaching the relatively low total of $15,000), and those who are afraid their money will disappear (thus the funding with government bonds, so there is no loss in principal).”

        Most IRA accounts have low minimum opening requirements (sub $500). Betterment doesn’t require any minimum. While there’s no loss of principal, there is potential loss in real dollars (after inflation) of MyRA. With an IRA who says you have to invest in risky assets? There are IRA CDs available and can invest in bonds funds or bond ETFs in an IRA if you choose.

        How is a MyRA better than the IRAs offered by financial firms?

        • “How is a MyRA better than the IRAs offered by financial firms?”

          It’s not. It’s not supposed to be. It’s aimed at being an easy way to get people who aren’t “Investor Junkies” involved in saving for their retirement, people who don’t have $500 to open an IRA, or don’t know how to hunt down something like Betterment.

          I see from your site you have kids. When they were little (or now if they still are little), did you give them a piggy bank? A piggy bank isn’t “better” than an actual bank, but we give them to our kids to teach them how to save, and show them how a few pennies at a time can add up to dollars over time. Same concept here.

          • If it’s not as you also say yourself. Then why offer it? It’s redundant, ineffective, and ultimately a waste of taxpayer resources (since someone has to pay for managing the accounts).

            As I mentioned on my own post there are plenty of options already available that in my opinion are far superior. The issue isn’t more options, but individuals need to save more. In addition, need more education on about the investment options. MyRA does neither and is a substandard option, which ironically hurts the very individuals it proposes to help.

  8. So, (1) the account is like a Roth, (2) investment is risk-free but higher interest than savings accounts, (3) maximum account balance is $15k, and (4) I assume like a Roth contributions can be withdrawn without penalty.

    Does anybody else think this sounds like a terrific place to keep 3-6 months expenses that is usually recommended as an emergency fund?

    My only reservation is does contributing to a myRA in a particular year decrease your ability to contribute to retirement vehicles such as IRAs or workplace accounts during that same year?

    • Dan,

      Use ibonds instead if you prefer to go the government bond route.

      • Larry,

        My current emergency fund is actually part savings account and part I-bonds. But, from what I’ve read so far, the myRA might have a couple of advantages over I-Bonds pertaining to use as emergency fund.

        1. I haven’t read anything so far indicating the myRA will have a 1-yr holding period like exists for I-Bonds. I’m slowly adding a little bit of money from the savings to I-Bonds each month purely so only a small amount of my EF will be inaccessible at any given time because of the holding period. With the myRA, perhaps I could throw $10k in and still have the contribution amount available without penalty if an emergency happened next month. We’ll see as more details about the new accounts are revealed, but the descriptions so far seem to indicate it will be like a Roth.

        2. If you hit retirement age and no emergency has happened, just convert the EF in the myRA to a Roth IRA to spend when it makes sense in retirement, never having paid tax on the myRA earnings. Whereas when my I-Bonds mature, I need to pay tax on the earnings before I invest them anyplace else.

        • I don’t know what your monthly expenses are, but a total of $15k isn’t much of an emergency fund. At least with Ibonds it’s $10k per year per social security number.

          In addition Ibonds will match the rate of inflation, but MyRA (which the bonds will be based upon G Bonds) will not.

  9. Putting aside the issue of politics and whether or not the government should be involved with our investing, the biggest issue I have is why limit this to $15,000? Sure, that’s a little better than having 0 in retirement savings, but all that’s going to do is last a couple of months for most people, maybe at max a year if a couple each has $15,000 saved up. How is this going to help?

    It’s obviously a poor investment vehicle compared to what could be done, but if it’s a simple way for people to save a little, then I don’t mind the idea. I just think that capping it at $15K is going to make it largely ineffective.

    • I agree a 100% fixed income investment earning the average rate of >4yr treasury bonds is a poor investment vehicle for retirement. However, I think the intended purpose of the myRA is to get more people started saving for retirement. There are a LOT of people who are saving zilch. Nada. If this account gets them at least saving something, then the $15k limit makes sense. When these people otherwise saving nothing hit $15k, they will have to convert to a Roth and will have the ability to do more realistic investing for retirement from there.

      I think the point is the myRA serves merely as their easy introduction to retirement savings. I don’t know if it will work, but I hope it does. I have a hard time finding peers who are taking saving for retirement as seriously as I do, and I worry about what the future will be like for them at the time our peer group retires.

      • Chris in Boston says:

        Before we can hope to increase the rate of savings we need to address the issue of income. People need stable, full time employment with a decent wage before they can even consider increasing their savings rate. The median household income (not per capita) is only about $50,000 annually. When you fact in a family of 4 living off of $50K a year… food, shelter, utilities, there is not much left for people to save.

        MyRA is a poorly thought out plan that will do nothing to increase savings rates.

        • Chris — On the topic of what “people need” and what society should be expected to do about it, I think the elephant in the room (one that will likely never be addressed) is the problem of people having children that they can’t afford.

          Your family of 4 likely wouldn’t be so strapped if they were a family of 2 — and either the income or expense side of the ledger would likely be improved if they didn’t have to deal with child care.

          Procreation should be a matter of intention, and financial responsibility should come first. Unfortunately our culture is so overwhelmingly natalist that few people will even attempt to point this out (at the risk of being shouted down or regarded as cruel).

          • Pete, you are welcome to your opinion, but not everyone has to value affluence more than children–that is everyone’s choice to make for themselves. Of course we hope that people will be smart with their money. However, let’s face it, a “struggling” family with four kids in America probably still has a higher standard of living than most of the world and human history, so they really aren’t doing that bad in the grand scheme of things.

            Another way to look at it is the more children a person has, the more people they can depend on when they are old. Some people might say that it is a burden for children to have to care for a parent, but the parents did it for the children first, so there is no reason why they can’t return the favor. If someone only has two (or fewer) children, that is when they become more of a burden to them, and have to either look to their own saved resources, or to the government.

  10. MyRA is a horrible idea and doesn’t surprise me coming from this administration.

    Primarily we already have existing options called IRAs. Investing in low returning bonds when young (assuming it’s for that target audience since $15k limit is nothing) is a stupid idea.

    I mention some other issues on my site as well.

    http://investorjunkie.com/33751/invest-myra/

    I wouldn’t touch these things with a 10-foot pole.

  11. Chris in Boston says:

    Rather than worry about the typical American’s savings rate, we need to focus on INCOME. The vast majority of Americans are earning meager wages which is the real problem with retirement savings participation rates. It seems to me that the President is still not focusing on the real problem.

    • Exactly! It’s obvious to everyone but this administration. The route on how this president would go about creating “job growth” I would disagree with, but he can’t even propose that.

      This program is just a distraction to the real issues.

  12. Brad Ford says:

    1) if a small business can’t afford a 401k plan, I suspect that they will balk at dealing with the administrative costs of managing ObamaRa collections.
    2) how does Obama creat accounts like this without legislative approval? Answer: he can’t.
    3) most companies like Fidelity, Etrade, Banks aren’t going to want to manage accounts that small unless the get a subsidy from the government. Mailing monthly/quarterly statements plus the 1099 is costly.

    • 1) That was my first reaction too, but employers won’t have any administrative costs. People today can already buy savings bonds using payroll deduction. Same mechanism. Just the pilot program needed some volunteers, but the goal is full rollout to everyone with a paycheck.
      2) It’s a Roth IRA. It already exists. Payroll deduction mechanism already exists. He essentially just allowed more people to access the G fund (which also already exists).
      3) Yes that is the additional cost that will be borne by the government (and thus taxpayers). Looks like TreasuryDirect will manage the account statements and such, although I’m not a huge fan of them.

      • Brad Ford says:

        I have some savings bonds in TreasuryDirect. It is a very poor website. Frankly, it is why I don’t buy more.

  13. Chris in Boston says:

    Does anyone share the concern that this MyIRA could pave the way toward confiscation of retirement accounts?

    • Teresa Ghilarducci (who is a Progressive and probably thought up this dumb idea of MyRAs) has suggested having state-operated retirement programs.

      http://business.time.com/2012/03/21/what-will-replace-the-401k/

      So while the idea isn’t completely out there more than likely won’t happen. If you are really concerned you should have tax and tax deferred accounts, alternatives assets and the obvious assets overseas.

      The concern I personally have is as government debt and deficits continue to grow the reality of that happening becomes more of a possibility. Time will tell.

    • Brad Ford says:

      I don’t like Obama, but this doesn’t change anything in that regard.

      They will never confiscate retirement accounts. They will simply raise taxes on people with savings and/or deny them deductions.

    • I have the same concerns as Chris does and think that the government should stay away from peoples money.

      As for what Brad said – I never thought what happened in Cyprus would ever happen – yet here we are. Plus the IMF is talking about creating a “wealth tax” to confiscate peoples money for the good of the country… I did a big write up on it here (http://www.monsterpiggybank.com/what-is-cryptocurrency-bitcoin-litecoin-peercoin) when I was talking about the virtues of digital currencies and that the government has no control over it.

  14. All your assets are belong to us.

    How long before government mandates everyone saves x% of their income in the ‘safe’ retirement plan with US government as the custodian?

    Another revenue stream for a government that is hopeless with budget management.

    I say protest it now before the monster grows.

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