Introduction to MyRA

If you watched the recent State of the Union Address by President Obama, or follow finance related media, you are aware of the introduction of the new MyRA – My Retirement Account. As noted by President Obama, the program’s goal is to encourage millions of Americans to build savings that can supplement Social Security benefits.

Considering that Americans already have access to a myriad of savings and retirement plans including 401(k) and 403(b)s; traditional and Roth IRAs, Rollover IRAs, health savings accounts, and 529 college savings plans, how is the MyRA different and what does it add to the mix?

Essentially, the MyRA is a type of Roth IRA. MyRAIt will allow after-tax dollars to grow tax-free until retirement. Geared toward lower-income Americans, one objective is to encourage people to get in the habit of saving. Supporting that idea, this new plan will allow people to open a MyRA with as little as $25, and to contribute as little as $5 in regular payroll deductions. As many have noted, private financial services companies could offer such small accounts, however, they don’t because it’s not profitable for them to do so.

What are the key overarching outlines of the plan in addition to the $25 required to open an account and the $5 minimum requirement for payroll deductions? The MyRA is available only to those who don’t have a retirement plan through their employer, there are no matching contributions, it is only available to whose household income is less than $191,000 each year, and once the account balance hits $15,000 (or earlier if desired), it must be rolled into a private Roth IRA.

One of the things that caught my attention was the proclamation by President Obama that the investment returns will be the same as those enjoyed by federal workers who invest in the Government Securities Investment Fund (G Fund) and offered via the Thrift Savings Plan (TSP). As noted on the TSP site, the G Fund assets are managed internally by the Federal Retirement Thrift Investment Board. The G Fund buys a non-marketable U.S. Treasury security that is guaranteed by the U.S. Government. This means that the G Fund will not lose money.

As a federal employee that contributes to TSP, I am aware of the low fee – 0.027% – associated not only with this particular fund, but all of the funds available in the plan. Interestingly, Jack Lew, Secretary of the Treasury, noted that unlike federal workers who invest in the G Fund, MyRA customers will pay no fees. The only thing better than ultra-low fees are no fees!

I don’t believe anyone is under the impression that this new program alone will raise our dismal savings rate or solve the retirement crisis. However, based on my initial understanding of the program, I do believe anything that encourages Americans to save more, and provides a low-cost mechanism for doing so, is a step in the right direction.

At this time, there does not appear to be a lot of information available on the U.S. Treasury website. However, most of the outlines of the plan appear to be covered in this White House Fact Sheet.

What say you SavvyReader? What are your initial thoughts on MyRA?

Blogger-in-Chief here at RetirementSavvy and author of Sin City Greed, Cream City Hustle and RENDEZVOUS WITH RETIREMENT: A Guide to Getting Fiscally Fit.

10 Comments

  1. This could be good for those just starting out in investing. Once an account reaches a thousand or two, though, it would be better in a Roth IRA where the choices are much greater and likely the returns.

    The bad, here, is that Mr. Obama trots out these things and does nothing to help the economy grow. Yeah, I can hear some people blame congress. But, in any sane political theater compromise is king. That’s how things get done. The Democrats and Mr. Obama have been playing hardball for 5 years and cry foul when they posture in front of the plate and are hit by a pitch (but are given no base, and rightfully so)

    • Agreed that the MyRA will likely work best as a mechanism for getting people to start saving. Once a habit of saving/investing established, there are better options. The MyRA recognizes this by limiting MyRA accounts to $15,000, at which point the funds must be moved, if not already done sooner.

  2. I like this idea because it offers an opportunity for people to take advantage of jump starting a retirement savings plan.

    • Absolutely. While it will not solve the retirement crisis, it does offer an opportunity for people to jump aboard the savings/investment train.

  3. I certainly welcome any plan that can help people save for retirement. While the myRA will not be enough to provide a secure retirement for the many workers out there who do not have access to an employer provided retirement plan, I welcome any effort to get people to save more. I’m in favor of this if only as a starting point to a broader discussion and hopefully some real action to make retirement savings vehicles available to all workers. It’s definitely a step in the right direction.

    • Agreed, Kay. It is not the answer, however, if it provides an easier way for people to start saving and thinking more about retirement, it can be worthwhile.

  4. What about the 67% of Americans (per Gallup.com) who don’t plan their finances & who don’t save now as it is. Hopefully this program will require some form of financial literacy or be a catalyst in getting money & credit management in our school systems. #IJS

    • Your point regarding financial literacy is one I wholeheartedly agree with, Madam Money. As I have touched on numerous times, in various posts on this blog, we (Americans) have to do a better job of educating our youth with respects to understanding how the money system works, the value in saving/investing, and limiting debt. Until that happens, the introduction of any new savings plans will offer minimal relief from the impending retirement crisis. It seems to me that the most likely households to take advantage of this new program are those that have at least a basic understanding of personal finance, a desire to invest in a retirement account, and until this point were unable to do so because of the typically higher amounts, vice the $25 minimum with a MyRA account, required for the initial investment.

      With that being said, the reality is that there are ways to start investing with a limited amount of money, something I touched on in a blog post awhile back. As I noted then, I have often encouraged people to do something simple such as open an IRA account and start funding it. Individuals can do it on their own, online, with companies like Fidelity in 15 minutes. And even though they may not have $2,500 to purchase their first mutual fund (the normal minimal initial contribution), they can always set up automatic monthly contributions (the last time I looked, Fidelity requires $100 minimum for use of this feature) which are deposited into a money market account. If they cannot afford $100/month? They can also just manually transfer one-time contributions (e.g. $20, $25, $35). Once that $2,500 is reached, the first fund can be purchased. Of course, after that, smaller amounts can be used to buy new shares.

  5. I think it is an AWESOME idea! This will help the people do something for their retirement that can’t afford to do the $100 or more deposit each month. This could be a step in the right direction for a lot of people….hopefully! Love this idea.

    • Agreed, Karen. I believe it is a step, perhaps a small step, in the right direction with regards to getting more people energized with regards to retirement savings/investments.

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