MyRA: The new American retirement plan?
By Paul Cross
Annuity National Brokerage Co.
A stepping stone to government control of 401(k)s and IRAs?
We are drowning in a sea of debt, with corporate, state and federal pension plans underwater. Is the MyRA the new American Dream?
President Obama recently said he will use his executive authority to create a new type of retirement savings account, the MyRA.
“I will direct the Treasury to create a new way for working Americans to start their own retirement savings: MyRA,” Obama said in his 2014 State of the Union address.
“It’s a new savings bond that encourages folks to build a nest egg. MyRA guarantees a decent return with no risk of losing what you put in.”
Here’s a look at how the MyRA will work
Voluntary contributions. Contributions will be made via payroll deduction. The initial investment needs to be at least $25, but ongoing contributions can be as small as $5. Participants can save up to $15,000, or for a maximum of 30 years in this “starter” retirement account before they will need to transfer their balance to a private sector Roth IRA.
Employers will not administer or contribute to these retirement accounts — but they must sign on for their employees?
Portability. Savers can keep the MyRA account when they change employers and may contribute to the account from multiple jobs. They can also roll over the balance into a private sector retirement account at any time.
Tax-free income.The MyRA is a Roth account, which means participants contribute after-tax dollars. Withdrawals in retirement, including the earnings, will then be tax-free in accordance with the Roth IRA rules. Early distributions of the contributions, but not the earnings, can also be withdrawn tax-free at any time.
“The primary purpose is saving for retirement, but if they have some need, they can pull that money out, and if it’s just the principal amount there is no penalty,” said a senior administration official.
The final bill signed into law will trump all predictions and all sideline talk.
MyRA G Fund
Principal protection. Unlike those with market investments, MyRA participants will be protected from market losses and guaranteed that the account will never go down in value. The investment in the account will be backed by U.S. government bonds via the G Fund. But what are the administrative fees, and who is going to pay them?
Interest rates. MyRA savers will earn interest at the same flexible interest rates as federal employees in the Thrift Savings Plan’s Government Securities Investment Fund, aka the G Fund. Historical G Fund interest rates
The following are year-ending 2012 real numbers.
- 1-year — 1.47 percent
- 3-year — 2.24 percent
- 5-year — 2.69 percent
- 10-year — 3.61 percent
The MyRA will be restricted to individuals with income up to $129,000 and annual households earnings under $191,000.
Another qualification: The Treasury says the MyRA will be restricted to Americans who currently lack access to workplace retirement accounts.
A statement from the White House said, “Workers must have a place to invest their hard-earned savings that provides an appropriate balance of risk and return, and many private sector providers do not offer retirement savings options tailored to smaller balance savers.
Another statement from the White House: “Our retirement system (MyRA) should help these potential savers and encourage them to begin building their retirement security.”
Help is needed
The Treasury is in the process of selecting a financial firm to administer the program. The pilot MyRA is expected to be available though some employers by the end of 2014.
A side note from the author: During his State of the Union Address, President Obama, said, “Today most working Americans don’t have a pension plan and a Social Security check on its own isn’t enough.”
My questions are:
1. Will employers sign on and administer $5 payroll deductions for employees?
2. Will a $5 MyRA work for anyone?
3. Why would people not elect to use traditional IRAs and Roth IRAs over MyRA?
4. What administrative fees will the administering financial firm charge? And, who will pay them?
5. Is MyRA a stepping stone to government control of 401(k)s and IRAs?