myRA Being Phased Out

The myRA – My Retirement Account – was introduced in 2015. As noted by President Obama at that time, the program’s goal was to encourage millions of Americans to build savings that could supplement Social Security benefits.

Considering that many Americans already had 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, the question was, “How is the MyRA different and what does it add to the mix?”

At the time I wrote: Essentially, the MyRA is a type of Roth IRA. It 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.

When the myRA was first introduced, I also noted that I didn’t believe anyone is under the impression that the new program alone would raise our (American’s) dismal savings rate or solve the retirement crisis. However, based on my understanding of the program, I did believe anything that encourages Americans to save more, and provides a low-cost mechanism for doing so, is a step in the right direction.

Unfortunately, as noted in a CNBC opinion piece, the myRA is being phased out by the new leadership at the U.S. Department of the Treasury because the agency doesn’t view it as cost effective given that demand has been “extremely low” and because “ample private sector solutions exist” that offer “no account maintenance fees, no minimum balance, and safe investment opportunities.”

There’s just one problem. These are alternative facts from Treasury.

Already, a program in its infancy has a substantial number of accounts and savings socked away – 30,000 accounts and $35 million saved according to Treasury officials. Moreover, there are no other comparable savings products available to low-and middle-income Americans. MyRA is the only retirement product available for “small savers” without fees or minimum balance requirements, and that does not penalize savers for withdrawing funds early.

Losers? Low-and middle-income Americans. Winners? The financial services industry. So long, 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.

7 Comments

  1. Nice write up. This seems to have went under the radar of far to many that could have benefited. Additionally, the low press didn’t make it very far either. Sad thing regarding the MyRa situation. Sure it wasn’t great, but as you noted a step in the right direction. That $25. and $5. minimum was a good way to get the conversation started for a lot of folks. It was “un-complicated” and easy. Seems like some insight to the thoughts on privatizing Social Security and rationalizing how people will be able to make their way in the private sector, because there are so many options. If you ever go into a foreign restaurant and look at the vast menu with many, many options it won’t matter because you won’t understand the options. But you can see and even smell the food cooking.

  2. I just got the dear John letter, and found your article.

    I thought the myRA useful even though I already have other plans – it offered better returns for no fees than your typical savings account or CD. I did wish there could be a higher ceiling than 15K, but now the point is moot.

    The problem is that it was not at all promoted – I only happened to read a mention of it in some local newspaper, and the IRS didn’t even know what it was when I called them for more information! Even so, you note that many Americans managed to set up an account.
    I am therefore disheartened, though not surprised, that this program is being dismantled by the new administration.

    • Thanks for stopping by and sharing your experience. No doubt it wasn’t perfect, but I do believe it was performing its stated purpose; and perhaps even more importantly, if it had been supported/promoted by the current administration, it could be modified over time to address any shortcomings. As I noted previously however, there are forces out there who have no interest in seeing a low-fee savings/retirement vehicle, which requires very little administration, succeed.

  3. I was never thrilled with the myRA. It was small potatoes and never would have made a significant dent in our dismal savings rate. What I would like to see done is something along the following lines:

    * A $1,000 contribution by the federal government annually to the account of any low-income American who opens a Traditional or Roth IRA.

    * A low-income American will be defined as any adult who makes 140% of the federal minimum wage or less.

    * Any principal from the federal government may not be withdrawn penalty free until the account owner turns 59 1/2.

    Thanks for pointing out the demise of the myRA, James. I give the previous administration credit for trying something different. I just wish it would have been more bold.

    • Absolutely agree it is possible to develop a better program, or combination of programs, to improve/encourage savings and investing. However, the myRA was not intended to be a panacea for savings/investing. It was specifically structured to help get people started, to help them develop a savings habit, and then transition to traditional/existing retirement vehicles.

      Unfortunately, particularly for those who need such programs the most, there are forces – namely the financial services industry and their lobbyists – who actively fight to maintain the status quo; not because they believe it works well for consumers, but because it works well for their bottom line. To its credit, the Obama administration recognized this and put in place what was most likely the boldest program possible. A classic case of one step forward only to be knocked two steps back.

      Contrary to what those in the industry say, and what many in the general population believe, most in the financial services industry aren’t really interested in their customer’s bottom line … well, they are, but only to the extent they can get as large a piece (fees, fees, and more fees) of the pie for as little work as possible.

      Thanks for stopping by and sharing your thoughts.

  4. Being a proponent of always saving more, it’s always sad when a program ends. That being said, I do worry about the overall costs of our government and I think all programs should pass a significant “cost hurdle” to make sure they are worth it. I don’t have any idea if the MyRA program was worth it or not.
    Since it is being phased out, I wish the federal government would put a big push behind old fashioned savings bonds. To me, these would be great for small investors for a limited period until they built up several thousand that could be transferred to a brokerage account.
    They can be bought for as little as $25. You can set up direct deposits to buy them. Yes, the interest rate is horribly low right now, but again – think temporary. This is just a place to get started.
    I even wish they’d bring back the paper bonds. That was really easy. Walk into any bank with $25 cash and walk out with nice feeling paper bond – something tangible. I think savings bonds are a great way to get people started down the saving track.

    • Regarding Savings Bonds, agreed that they are a great way to get started … they were one of my first savings/investment vehicles. The problem right now, as you note, is the yield is terrible. Unfortunately, since we’re in a low inflation rate environment, I don’t see that changing anytime soon.

      Regarding costs, the U.S. Treasury website notes that, “American taxpayers have paid nearly $70 million to manage the program since 2014.” A dubious claim in my opinion. I would love to see a breakdown of the numbers. In any event, at the end of the day it is low-and middle-income Americans who will lose out as getting on the savings/investing train will get harder.

      Thanks for stopping by and sharing your thoughts, my friend.

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