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.
- myRA FAQs, Department of Treasury
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