Is myRA for you?
On January 29, President Obama signed a Presidential Memorandum directing the Department of Treasury to create myRA. And that’s about the last I heard about it. Sure there was a flurry of articles in my industry about it, but the conclusion was that the kind of folks that become clients of investment professionals wouldn’t be using them.
So what are myRAs, who can use them, who are they good for, and when might one use one?
The short answer is that they are a special type of Roth IRA with a fixed, very safe (no-loss), investment built into them that are funded through payroll deductions. As such, they are for employed people who don’t save currently, who want a no-risk investment vehicle, and who otherwise don’t have access to an employer-sponsored plan.
There will also be an income limit. If you make over $129,000 a year ($191,000 for a couple) you won’t be able to use these. The maximum you are allowed to save in one is $15,000. Once you get higher than that or after 30 years, the myRA will be rolled out to a private-sector plan (how that will work is still being figured out).
What’s nice is that these myRA Roths, due to be rolled out at the end of the year, will have no fees. Many investment companies charge a nominal fee for small accounts. You can also open one for as little as $25 and can add as little as $5 each paycheck. Again, for-profit investment companies will often have minimums of $1000 to $5000 to open an account and $50, $100, or more for additions.
Like any Roth IRA, contributors can pull out whatever they put in without penalty or taxes. After all, this is funded with after-tax money. This will be comforting to folks who are looking to get a start on their retirement savings, but have little left over at the end of the month to use in case of emergencies.
Some folks don’t like these myRA accounts. One common criticism is that the investment inside them will almost certainly not go up very fast. Most in my industry would consider the ultra-safe investment that is imbedded in the myRA a poor choice for retirement savings. President Obama noted in his State of the Union when introducing the plan that “while the stock market has doubled over the last five years, that doesn’t help folks who don’t have 401(k)s.” Well, myRAs also won’t help folks much in capturing the rise in markets.
Yet the types of investors who might be interested in these plans probably don’t have stock market investing as their primary goal. They want to do something that’s fairly easy, that’s not too risky, and that they have access to. For those people the myRA might become an excellent choice. You’ve got to start somewhere.
Another legitimate gripe is that folks might think that if they are using a myRA then they are doing all they need to do for a comfortable retirement. Also, in the initial phase only employees whose employers want to play can have a myRA. The government thinks employers will jump on this bandwagon, but similar efforts, such as the payroll deduction IRA, haven’t really caught on. Time will tell.
A version of this article was published under the title "Easy, accessible myRAs"
in the Wichita Falls Times Record News on June 8, 2014.