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Kent Thune

Obama's 'MyIRA' Better Than Nothing

By January 29, 2014

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President Obama unveiled a new retirement savings account, the MyRA, in his 2014 State of the Union address to Congress. Similar to the 401(k) and Individual Retirement Account (IRA), Obama said the MyRA will provide "a new way for working Americans to start their own retirement savings."

MyRA a Positive Alternative to Workers With No Other Option

For workers with no employer-sponsored retirement plan, such as a 401(k), and with very little money or knowledge to start their own investment accounts, the MyRA option can be a good start. Here are some of the key features of the MyRA:

  • Workers can have part of their pay deducted for deposit into an account invested in U.S. government bonds.
  • For tax purposes, it would be treated the same as a Roth IRA (tax-free earnings but not tax-deductible contributions).
  • Available to people with annual household income up to $191,000 whose employers choose to participate.
  • Initial investments can be as low as $25 and payroll contributions as low as $5.
  • The plans are set up through the US Treasury Department.
  • Maximum balance of $15,000, after which money would have to be rolled over into a private- sector Roth IRA.

The key benefit to the MyRA appears to be the accessibility. Most mutual funds have minimum initial deposits of more than $1,000, which is not affordable for many Americans. Also, the investment in U.S. Treasury Bonds may not be the ideal long-term investment but it is arguably more appropriate for beginning investors than leaving them at the whims of the market risk associated with stocks, which can be detrimental to a beginner's psyche, to say the least.

One of the most difficult steps in the financial planning process is just getting started and this new MyRA plan appears to be just that--a start.

Comments
January 30, 2014 at 9:15 am
(1) Peter says:

This should work as well as Social Security, I am so looking forward to not receiving that even after putting money into it for the last 29 years. Nothing the government does is any good. If you want to trust these idiots go for it I’m not.

January 30, 2014 at 9:19 am
(2) Dave says:

Agreed…it’s the biggest heist in USA history!

January 30, 2014 at 9:29 am
(3) JoleneAL says:

This is a way to steal people’s hard earned money to pay of his debt. Only people working will be able to do this.

Also — it is an “automatic forced Opt In” … you have to OptOut to prevent the Government from further stealing your hard earned money.

This is theft …

January 30, 2014 at 9:52 am
(4) John says:

This is nothing more than a massive money grab — because the Federal Government doesn’t have enough money to keep spending like it wants to. US debt is becoming worth less and less, we’ve actually monetized our debt and now the US Government is the biggest purchaser of our own debt. Yep, the Treasury Debt issues T-Bills, the Federal Reserve prints money and “loans” it to Wall St, and Wall St then buys the T-Bills in the largest money laundering scheme in history.

But that game is faltering, they need new cash, and there is some $20 TRILLION in private savings they want to get their hands on. Then they can Ponzi scheme the formerly private IRAs and 401Ks, spend all that money on their Cronies and pet allies while pretending to pay off the debt, and hope you die before you’re old enough to get some of your money back.

Argentina did this in 2008 when their government ran out of money. So they created a government retirement account and “rolled” all private savings into (forcibly). It only deepened their economic crisis. Here, it would body blow our economy.

January 30, 2014 at 11:26 am
(5) mrmcmath says:

The only scary thing about the MyRA is that it will be run by the federal government!

January 30, 2014 at 3:02 pm
(6) mutualfunds says:

Good points, everyone.

As an investment advisor and financial planner by trade, I can say that I would not recommend the MyRA to the vast majority of the population.

I also agree that the government is not an institution worthy of one’s trust, especially with regard to money! I would also add banks, big brokerage firms, and insurance companies to that category. But I digress…

The primary perspective from which I wrote the article, at least the “better than nothing” angle, was that there are people who would not save anything at all if not for a program like this.

Again, with that said, if anyone asked my advice about participating in the MyRA, I would likely advise against it and suggest they save money in a regular savings account until they have enough to meet the minimum initial purchase requirement (usually $1,000) for a high-quality, low-cost balanced mutual fund.

You’ve given me a good idea for my next post here!

Thanks for your comments and for reading…

Kent Thune
Mutual Funds Guide

January 30, 2014 at 8:24 pm
(7) Bob Caterton says:

It’s pretty simple, folks… As SOON as you give money to the Government, it’s no longer yours. They don’t hold it for you – they spend it. You give them your money, you can’t borrow against it, or leave it to your children when you die – it’s just GONE. The only evidence that I have of this claim is every single dollar contributed by every single individual to every single Government program in the U.S. They spend it as soon as they get it, and then set about forcing higher contribution rates for future generations to subsidize their irresponsible spending. MYRA will simply be the “next generation” of “third rail” politics… and it will never be collected by anyone 2-3 generations removed from its implementation. It will be “invested” in Government Bonds… and, once insolvent… or even before insolvency – with the threat of becoming insolvent – the cry will be how “unfair” it is that people who are using their 401K’s as retirement savings are really “robbing” MYRA. Within a decade, we will have progressives demanding redistribution of 401K assets into the MYRA system. This is the plan, without a doubt.

January 30, 2014 at 10:01 pm
(8) mutualfunds says:

Thanks for the valuable input everyone. I’ve offered some simple alternatives to the MyRA here:

A Better Alternative to Obama’s MyRA

I’d love to hear some of your solutions as well.

If anything, the MyRA has generated some healthy debate on this often overlooked subject.

Thanks again…

Kent

January 31, 2014 at 6:23 am
(9) John J G says:

The MyRa account is not described here as being protected from inflation. A cost of living adjustment (COLA) ought to accrue to balances in the account. The COLA ought to be wholly exempt from all taxes.

January 31, 2014 at 10:34 am
(10) Optimist and Non-Hater says:

Great idea. Any means to save for retirement using your own money deserves credit. I’m more practical and not a hater so won’t waste my time or energy with predictions of doom and gloom. Where do I sign up?

January 31, 2014 at 11:26 am
(11) Doug says:

Your statement that
MyRA a Positive Alternative to Workers With No Other Option
The free market is an option. Allowing people to invest,gain and lose on their own . Abolishing the tax codes in these areas. Another option.
Privatize and return Social (in) Security monies, another option.
Change retirement tax codes, another option
No sir, NO OTHER OPTION is clearly controlled speech in order to control.

January 31, 2014 at 12:43 pm
(12) Kent Thune says:

Doug,

Thanks for the comment. I must clarify that I never said savers had “no other option” to Obama’s MyRA. However, I did say that saving something is better than saving nothing.

This is a behavioral statement, not directly a financial one. I worked in the pension industry for several years before starting my own investment advisory firm. The number of people who don’t save money because they are not aware of “another option” was alarming to me.

I could tell people all day, “use the free market,” and they would stare at me like I was speaking a foreign language.

What I do now, at least in terms of writing for this website, is to teach the basics of mutual funds, which are in my humble opinion, a far superior alternative to Obama’s MyRA.

Mutual funds are relatively easy to understand and they are accessible to the vast majority of the population. They also provide a means of building wealth (outpacing inflation), that is not possible with “guaranteed accounts” or government bonds, especially after tax.

The government won’t educate people on how to use “the free market” but I will.

Now I’d like to know what solutions YOU can provide. As I tell my children, “Don’t come to me with a complaint or a problem without bringing a solution.”

Here’s my solution, inspired by comments like yours:

A Better Alternative to Obama’s MyRA”

January 31, 2014 at 3:19 pm
(13) Micah says:

I guess I’m totally confused about why MyRA even exists. Why would you use this vehicle over a ROTH irregardless of what your employer offers in terms of 401k.

Apparently ROTH and MyRA are identically tax sheltered.
However with the ROTH you can be 100% self directed whereas the MYRA is placed into a government security that’s has a yield completly dissociated with its underlying risk.

Here’s the ideal schema for taking advantage of tax free / tax deferred investment vehicles.

1) Contribute to 401k up to the matching (if your employer offers)
2) Contribute to ROTH IRA up to Max
3) If your savings rate is greater than #1 + #2 then you look back to the 401k up to its max or to the traditional IRA to take advantage of tax deferred growth
4) Additional savings into a brokerage or savings account

MyRA would theoritically show up at #3, but it is so limited that you would hesitate to use it. Also, those low income folks this is supposed to help most likely won’t exceed the savings rate in excess of the ROTH.

What am I missing,?? this program is next to useless.

February 1, 2014 at 3:13 pm
(14) david says:

how about a law requiring some type of ira. a min of 6 percent of your wage must be dedicated to this account. all accounts must be licensed with each state. it is not to be dependant on employers to be enacted. it all lays on the individual. its all up to you on how much you would want to retire on. not the govt. or us the tax payer.

February 4, 2014 at 4:23 pm
(15) James says:

Sounds like a variant of Social Security … which we all know how that is working out ,,, its “broke” and will not be able to keep up with the payouts to those that paid into it … because the government spends it faster than everyone pays into it. Hmmm … sounds kinda like a Ponzi scheme huh.

February 6, 2014 at 3:36 pm
(16) RighteousTruth says:

The anti comments below are all wet. This is the same as putting money into a employer’s 401K only it is run by the government, has a lot less risk and pattern after the IRA. Most people with “good jobs” won’t qualify as they already have pensions or employer sponsored 401ks. This is for the little guy, the risk adverse and the retire saving procrastinators..

February 6, 2014 at 3:48 pm
(17) RighteousTruth says:

Your hostility to this saving program does a disservice to the working poor that does not receive any pension or 401K and does not have the discretionary funds, understanding or the will power to invest on their own. You would have them do nothing and for there to be no mechanism to help them save for retirement. This attitude is very rightwing oriented. Sort of “let them eat cake”. Shame on you.

February 18, 2014 at 8:57 am
(18) InAPickle says:

“It’s better than nothing. A phrase used to describe an accomplishment so insignificant it is virtually equivalent to nothing. Often used by slackers to justify slacking” Wow, today’s logic thinking is out of the question… at least the guy got paid for this s**t. Truly bad advise is better left unsaid… since it’s immoral, part of unethical journalism.

February 18, 2014 at 9:03 am
(19) InAPickle says:

RighteousTruth: You are basing your thinking like a person leaving in a limbo… do you keep up with recent news and politics? Quite sure you don’t. There is financial scandal on gov. level and you are pushing myRA. I suppose to trust someone that can NOT even get their own house and finance in order. RighteousTruth you sound like a leftist sociopath that would like to steal other people money no matter how little they have.

February 18, 2014 at 9:14 am
(20) MarkusS says:

myRA is like taking a candy from a baby :D … that’s would be interesting to watch after some years pass.

February 19, 2014 at 4:34 am
(21) p2p says:

well RighteousTruth — Have-You-No-Sense-of-Decency or are you just uneducated. If you are not educated with finances then there is no reason to stir people in the myRA wrong direction.

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