While watching President Obama’s State of the Union speech, I was surprised to hear him introduce yet another retirement savings vehicle. In addition to 401(k) and 403 (b) plans, and both the traditional and Roth IRAs, we now have the MyRA (my retirement account).
I was pleased that he stressed the importance of saving money for
retirement. Anything that can be done to motivate people to do so is
fine by me.
However, I’m a bit surprised that one of the key features and selling
points of the new MyRA is the convenience of payroll deductions. Since
there’s already a bill in the legislative process to make payroll
deductions more convenient for employers with the existing IRA plans,
that doesn’t seem to be much of an incentive.
With MyRA, Uncle Sam will pick up all the administrative costs. It only
takes $25 to open an account and subsequent contributions can be as low
as $5. With these smaller amounts, the target audience is clearly the
low-end of the wage scale.
Investments will go into a government bond fund backed by Uncle Sam. The
President emphasized that, since the U.S. Government backs deposits,
there’s no risk of loss of principal.
That being said, long-time readers of this column are aware that rising
interest rates and inflation are enemies of bonds. In other words, the
risk of any bond is the loss of “purchasing power” due to inflation. But
I’m supportive of any investment that gets people saving for
The new MyRA is similar to the current Roth IRA in that contributions
are not tax deductible and the monies grow tax-free if used for
retirement. As I write, not all details are available, but I imagine
there will be taxes due on the interest and perhaps a penalty if funds
are withdrawn before age 59 ½.
Unlike the other IRA investments, there’s a maximum cumulative total of
$15,000 in the account. At that point, the MyRA is transferred into a
Because the target audience is the low end of the wage scale, I was
surprised that the MyRA also has features and benefits for middle and
upper middle-income families. For instance, those that currently have an
employer-sponsored 401(k) can also participate in the new MyRA.
In fact, families with household incomes up to $191,000 can open a MyRA.
Just a word of caution, at this point I’m still waiting to see the
final definition of what exactly household income entails. The $191,000
limit is by no means at the low end of the wage scale.
Although I’m pleased that we’re talking about saving for retirement, the
fact is that one more choice was just added to an already complex menu.
Sometimes in life the biggest step toward any goal is the first step of
participation. If the new MyRA gets more people to take that first
step, then it will ultimately be a good thing.
If it becomes another government program with overly complex rules,
regulations and exceptions to those rules and regulations, then I think
it will ultimately have minimal impact.
However, in my book, any time the President discusses the importance of
saving, especially for retirement, I am supportive. Hopefully, the new
MyRA will be a launching pad for a successful retirement.