myRA = Roth IRA + Savings Bonds

President Obama announced a new myRA in his 2014 State of the Union address. It sounds like basically Roth IRA + Savings Bonds.

Anybody except high earners can already contribute to a Roth IRA. Anybody can also buy Savings Bonds. So far nobody can do these two things together in one account. Soon you can in myRA.

That’s all there is to it. It doesn’t increase the amount you can save in a tax-advantaged account. It doesn’t offer an investment with high returns backed by the government, such as 3% plus inflation as someone suggested. If you care enough about saving for retirement, you would be saving for retirement already, maybe in a Roth IRA, whether your employer offers a retirement plan or not.

You can already open a Roth IRA with any financial institution of your choice. You can already send a part of your paycheck to your Roth IRA via a split direct deposit or automatic debit from your checking account. You can already invest in CDs with no risk to principal, backed by the federal government through FDIC or NCUA insurance. myRA just makes it into one package, maybe a little easier to sign up and use.

Don’t write off “a little easier” too quickly though. Amazon’s patented 1-click just makes ordering a little easier. It doesn’t add anything to what you can already do by going through the steps. People use it because it’s easy.

The savings bonds in myRA at least offer a better rate than the I Bonds and EE Bonds at the moment. They are going to pay the same rate as the TSP G Fund, currently at 2.5%, versus 1.38% on I Bonds. People jump through hoops to buy I Bonds. Maybe some of them will like the G Fund equivalent as well. Too bad your employer still has to sign up first, at least for the time being.

There’s a $15,000 cap before the money has to be transferred to a private-sector Roth IRA. Maybe it can be overcome by transferring out and starting over? This $15,000 cap is a real bummer. It means you can only taste the G Fund a little bit before you are kicked out, no matter how much you like the G Fund.

It’s a good start though. If not enough employers sign up, maybe it will be opened up to individuals directly. If people love it and they demand to stay after having $15k, maybe they will be able to stay. If people want the rest of the TSP menu, maybe they will get the full menu eventually. If people love it for their Roth IRA, maybe it will become an option as a no-match 401k. You have to go one small step at a time.

By the way I think myRA is a terrible name. Even the President had trouble pronouncing it in the speech.

Reference:

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Comments

  1. Marc says

    From the WSJ: “The investments would offer the same variable interest-rate return as the benefit federal employees get when they enroll in the Thrift Savings Plan Government Securities Investment Fund. This fund had an annual return of 1.47% in 2012, with an average annual return of 3.61% from 2003 through 2012.”

    • Harry says

      Thank you Marc. The G Fund is pegged to Treasury yields, currently at 2.5%. Worth diverting Roth IRA money over if it’s open to individuals not going through an employer? It will be more attractive if it accepts incoming rollovers. Then people can use it for the fixed income money.

  2. Peter says

    From USA Today: “Availability: The MyRA would be open to households earning up to $191,000 a year through their employers. Employers won’t incur any cost to offer the MyRAs. You’ll be able to save up to $15,000 a year for up to 30 years before transferring to a private Roth IRA.”

    • Harry says

      According to this Whitehouse press release, it’s “up to $15,000″ not “up to $15,000 a year.”

      “The product will be offered via a familiar Roth IRA account”

      “Participants could save up to $15,000, or for a maximum of 30 years, in their accounts before transferring their balance to a private sector Roth IRA.”

      I still read it as just a Roth IRA investing in G Fund, subject to the same limits on a usual Roth IRA, except your employer still has to sign up.

  3. Peter says

    The good news is it appears that this will increase tax advantaged space for people who work for employers that don’t offer a 401(k).

    The bad news it it appears that this will only be offered through an employer.

    I agree that myRA is a terrible name.

  4. TJ says

    So…if you are self employed can you offer yourself the MyRA? Ha.

    It’s pretty sweet that everyone essentially has access to the G Fund now.

    Is the 15k limit seperate from 401k limits? Hmm.

    • J says

      Maybe they didn’t want to cheese off the 401(k) racke–I mean, industry.

      I’m glad to have a 401(k) these days, but the investment options in my 401(k) aren’t the best.

  5. D says

    Tragically weak. If they are essentially going to open up one TSP fund, why not open them all up? And why do it through employers? And then a 15K accumulation cap? Its like the financial instutions said, “sure, you can have all the small accounts we don’t make any money on, just hand them over when they could be profitable.”

    The treasury direct suggestion makes sense to me as the tool.

  6. dan23 says

    Too bad – I was really hoping for more tax advantaged space back when they spoke about r-bonds.

    The 15k cap likely makes for effortful administration, and 15K saved up isn’t enough to make a difference when it comes to retirement anyway. I doubt a regular user will keep adding 15k and then transferring out (someone who saves that much will likely open their own ira). At best I see this as making it easier to get people into the habit of saving, I imagine this will have low positive impact on people’s financial futures.

    Curious whether employers have to register for this if they don’t have 401k offered.

    • dan23 says

      Ah, my question answered in fact sheet ” The President’s budget will propose to establish automatic enrollment in IRAs (or “auto-IRAs”) for employees without access to a workplace savings plan, in keeping with a plan that he has proposed in every budget since he took office. Employers that do not provide any employer-sponsored savings plan would be required to connect their employees with a payroll deduction IRA. “

  7. Bob's not my name says

    Isn’t the proposal regressive? Why would low savers/earners be nudged in the direction of Roth vs. tax-deferred? Sure, they’re probably in a low bracket now, but they’ll likely be in a really low bracket in retirement, particularly considering the breaks most states give to retirement income and TIRA withdrawals. So it seems like this is encouraging the middle class to voluntarily pay taxes today they might be able to avoid in the future.

    Actually, state tax treatment isn’t entirely predictable. States don’t always follow federal treatment so it’s unclear whether myRA contributions and withdrawals would be taxed. Currently, for example, Massachusetts, New Jersey, and Pennsylvania tax TIRA contributions, while many states exempt both TIRA contributions and withdrawals.

  8. Donny Gamble says

    I personally think that the myRA plan will destroy many Americans retirement accounts because I think the government bonds will be worthless in a few years. This is just a way for the government to gain more money to payoff bad debt.

  9. NoBama says

    The real problem is that Obama presented the concept as a Ponzi scheme. He claimed it would be a way to get a “decent” return in a completely risk-free investment. That’s an obvious lie the same way anyone else who ever promised a decent return and total safety was a liar. We have a Bernie Madoff for our President, a shameless sociopathic liar who’s also economically illiterate.

  10. thefinancebuffReader says

    If a myRa investor reached the $15K limit, could they transfer the monies into a ROTH IRA and then continue contributing to their myRa?

    If such a setup were possible, it might make the employer that doesn’t offer a 401k more desirable than an employer that offers a lousy 401k plan, all things being equal. With the former employer, your money is trapped in the myRa savings bond for a small period of time, but afterwards it is free to be invested wherever. With the latter employer, your money is trapped in a lousy 401k plan with potentially high fees and limited options for as long as you are employed with the employer.

    • Harry says

      We don’t know but it hardly matters. If the employee is that sophisticated and determined, he or she can just use a private-sector Roth IRA to begin with. The administration indicated it will accept employers “looking to supplement a current plan.” Your latter employer can make itself more desirable by offering both a lousy 401k and myRA.

    • thefinancebuffReader says

      It does matter as investing in 401k/myRa and Roth IRAs aren’t mutually exclusive. One could max out the ROTH IRA and use the myRa as a vehicle to invest more tax sheltered money.

      Obviously the myRa is designed for new investors, but I was just looking for unanticipated uses/ loopholes that could benefit non-new investors.

    • Harry says

      myRA is a Roth IRA. You can’t max out both. See the FAQs linked at the end of the article.

      “The retirement savings account will be a Roth IRA account and have the same tax treatment and follow the rules of Roth IRAs.”

  11. Steve says

    If one wanted to invest in Treasury securities thru regular payroll deductions, this can be done now by opening an account with the Treasury thru TreasuryDirect.gov and setting up an electronic transfer from your employer’s’ payroll system to the Treasury to buy Series-I US Savings Bonds. The details are on the Treasury’s website, Google ‘ treasury direct payroll savings plan’. As with MyRA, you invest in US treasury securities, the money is guaranteed not to lose value, and it is tax-advantaged (you are taxed at withdraw only on the interest accrued, and the interest is free of city and state income taxes). I don’t understand why the President has proposed a new government program when an existing program can accomplish his stated purpose.

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