OBAMA’S MYRA RETIREMENT ACCOUNTS – UN-REALISTIC CAPS AND ZERO INVESTMENT OPTIONS
In President Obama’s recent State of the Union Speech he proposed a new method to save for retirement called a MYRA. The MYRA, will work like a Roth IRA as contributions are from after tax dollars and withdrawals will be tax free. Or, will they? Like the President’s last proposal (you can keep your health insurance plan if you like it, you can keep your doctor), the devil is in the details. The myRA will be available to workers of businesses whose employers does not offer a 401(k) or other employer based retirement plan. Under the myRA, and upon voluntary cooperation from the employer, an employee can have contributions to their own myRA made directly from their payroll contributions. The minimum amount to start an account is $25 and the minimum payroll contribution amount can be as little as $5. While the details have not been discussed, presumably the maximum amount that may be contributed per year is the same as Roth IRAs ($5,500, under 50, $6,500, 50 or older). The myRA will be a government account managed by a private third party company. The accounts entire balance will be invested automatically, and without choice by the myRA account owner, into U.S. Treasury Securities. These securities earn about 2.5% a year. The government promises that no fees will be associated with these accounts. Additionally, there is an account maximum such that once an account reaches $15,000, it must be rolled over to a private Roth IRA account. In other words, the myRA is only good for $15,000. A myRA is by no means a retirement account you will retire on but rather a starter account that gets you into another retirement account (e.g., Roth IRA). What is very unclear in the current pronouncements is how myRA account owner’s can access these funds before retirement (again, presumably 59 ½). While the President and Treasury Secretary Jack Lew have stated that a myRA can be rolled over to a Roth IRA, they have made contradictory comments about worker’s access to the funds in a myRA. The President stated that funds may be accessible by a worker before retirement in an emergency while Secretary Lew stated that contributions invested into a myRA can be withdrawn at any time. As many Roth IRA owners know, withdrawls of Roth IRA contributions (not earnings) can occur at any time without penalty. So, how will this rule apply to a myRA. What is President Obama talking about when he says withdrawals can occur if there is an emergency? Well, needless to say, additional rules will be provided by the Tresuary Department as the President has tasked them with creating the rules for myRA accounts. Bottom line, these accounts offer no investment options outside of one government security and can only be used up to $15,000. While it will be a tool used for some, most other worker’s are waiting for a real solution that increases contribution amounts in existing plans being offered (401(k)s, IRAs, Roth IRAs, SEPs, etc.) while offering unfettered investment options. The myRA fails on both fronts.
