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Monday, April 7, 2014

24. What do you think of MyRA?

I asked this question recently when looking at different retirement options. Here’s some thoughts and observations.

President Obama said regarding MyRA January 2014:
"Let’s do more to help Americans save for retirement. Today, most workers don’t have a pension. A Social Security check often isn’t enough on its own. And while the stock market has doubled over the last five years, that doesn’t help folks who don’t have 401ks. That’s why, tomorrow, I will direct the Treasury to create a new way for working Americans to start their own retirement savings: MyRA. 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. And if this Congress wants to help, work with me to fix an upside-down tax code that gives big tax breaks to help the wealthy save, but does little to nothing for middle-class Americans. Offer every American access to an automatic IRA on the job, so they can save at work just like everyone in this chamber can..."

This source said the following:

"In his State of the Union Address in January 2014, President Barack Obama unveiled what he hopes will be a solution to the retirement program. A retirement account called the MyRA is aimed at those who don’t have employer-sponsored retirement accounts, but it will also be available to those with employer plans. The MyRA retirement savings plan is also designed to encourage saving due to its low barrier to entry."

Someone pointed me to this source. Here's what I found:

Seems like anyone can invest as long as their household income falls below $191,000 a year.

It's interesting that MyRA allows savers to invest after-tax dollars and withdraw the money in retirement tax-free. The account will only invest in government savings bonds. So it will be a low-yield investment like the Thrift Savings Plan's Government Securities Investment Fund (TSPGSIF) say making 3.6% that occurred from 2003 to 2012. Doesn't that barely keep up with inflation?

There's taxes and possibly a penalty if you withdraw before 59 1/2. Backed by the U.S. government so savers never lose their principle investment. Unless of course the government goes bankrupt... No investment is 100% guaranteed.

People can invest initially as low as $25 and monthly as low as $5 a month... with maximum contributions of up to $5,500. Once the balance hits $15,000 or after 30 years it is rolled over to a private sector Roth IRA. Unlike a Roth IRA the MyRA is something employers can offer directly to employees. Interesting.

It seems like a limited version of existing Roth IRA plans already in place. And you can't do both a MyRA and Roth IRA from what I understand. Perhaps as some would argue this is a way that the President found to get around Congress's perceived inaction? Perhaps one of President Obama’s better proposals?

A step in the right direction it looks like as it gets people saving. But it still needs work as seems incomplete.

Also the 3.6% projected earnings is pretty low. Living frugally and saving is more of a mindset, pattern, or habit people develop. People who are struggling financially may not have the mindset of saving $25 or even $5 a paycheck.

What do you think? Do you have a 401k, Roth, Roth IRA, or are you considering starting a MyRA investment? Leave a comment!

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