MyRA (My Retirement Account), is the new payroll deductible savings vehicle announced by President Obama during his State of the Union Address on January 28th. It is a Roth IRA structured plan targeted towards lower-income workers who currently are not saving for retirement through a plan available at work.
The MyRA Plan is intended to jump start savings amongst a group of people who don’t have retirement plans readily available to them. MyRA is offering an easy, secure place where lower-income people, who are not covered by an employer retirement plan, can begin to save for retirement. Contributions to MyRA are allowed for households earning up to $191,000/year.
The existing laws governing Roth IRAs are likely to apply; for example, contributions to the plan are not tax deductible. Contributions can also be withdrawn at any time, earnings from investments in the MyRA will accumulate tax free and distributions from the plan will not be taxed either. A withdrawal of earnings will still be subject to the normal Roth IRA rules to be eligible for tax-free withdrawals of growth, including the Roth earnings 5-year rule and the requirement to be either age 59 1/2, deceased, disabled, or (a limited amount) for a first-time homebuyer.
While at first glance this looks similar to a Roth IRA, the mechanics of the MyRA plan are certainly different. Initial investments can be as low as $25, with ongoing contributions as modest as $5 per paycheck. These contribution levels that are smaller than what financial institutions typically allow. As a result, many detractors of the new MyRAs have emerged, from those who think the accounts will create more confusion by adding to the patchwork of retirement account choices while creating little new value (and worse, defaulting young people into fixed income investments without a chance at the long-term growth of equities); to those who complain that since the accounts are still purely voluntary to contribute to, and those contributions remain liquid and accessible (as is standard for all Roth IRAs), that participation will be limited and those in need will just tap the accounts to spend later anyway.
The reality is that MyRA is unique in its ultra-low direct deposit contribution limits. While it’s fixed-income investment option is not ideal in the long-term, once the account balance reaches $15,000, the MyRA account is “forced” into a private sector Roth IRA that can be reinvested in a more diversified manner. MyRA accounts will be offered through an initial pilot program by the end of 2014 via employers who choose to participate (implying that wider rollout isn’t likely until 2015 at best).
The concern that MyRA might do very little to help the lower-salary workers still remains, and some may even think that it will quickly become another bloated bureaucratic system that wastes billions of taxpayer dollars instead of creating a real solution to the potential retirement crisis that is already affecting the US.
The MyRA
