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myRA, What Is It And Can It Work?

State of the UnionI’d be lying if I said I actually watched or paid much attention to the State of the Union address last week. However, one point of President Obama’s speech did spark some interest as I was looking at the highlights online. The President is putting a new retirement savings plan into place called myRA. It is supposed to be a take on I-R-A and is pronounced with three syllables, my-R-A, although I can see it being called Myra, like the name. I’m not sure which clever political mind came up with that title, but anyway, is myRA a good plan for retirement?

Well, just like most government policies, it depends. You can get a good breakdown of the preliminary rules of myRA from CNN Money, but here are the highlights.

-Available for employees making less than $191,000 whose employers agree to participate and offer direct payroll deposit.

-Works like a Roth IRA, where contributions are not pre-tax or tax deductible, however, withdrawals of contributions and interest are tax free after age 59.5.

-There are no fees.

-Money is invested in government backed bonds similar to the Thrift Savings Plan G fund. Principal is guaranteed, meaning you might not earn much interest, but you can’t lose the contributions you put in.

-You can start with as little as $25, and make contributions as low as $5.

-You can only invest $15,000 during a time period of up to 30 years. After that, the account must be rolled into a regular Roth IRA.

Alright, lets remove all the personal financial geeks who already contribute to a 401k or similar and know how to set up a Roth IRA on their own. They already appreciate the beauty of compound interest, aren’t afraid of stock market fluctuations, and have a solid idea about how they plan to fund retirement. myRA is probably not for you.

Let’s look at the person who works part time at a grocery store or for Jim Bob’s Auto repair who has no opportunity to participate in  a company retirement plan. We’ll look at those people who would rather have their grandma give them an enema than study the stock market or types of IRA’s. Also, take into account young people who saw their parents wipe out during the great recession. Maybe they are scared to death of the stock market. These are not people who don’t want to plan for retirement. They just don’t know how, and rather than take a chance of doing something wrong, they do nothing, thinking that next year will be the year for starting a retirement account. These are the people that myRA is perfect for.

No you won’t retire well on $15,000. Anyone has to agree, though, that being able to save that amount of money is empowering and is likely to cause that person to want to continue saving, even if it means dipping a toe into private sector retirement accounts. The myRA isn’t going to make anyone rich in interest either, but it’s much better than letting money sit in a savings account or not saving at all.

The myRA is also a much better alternative than letting your buddy who sells insurance talk you into a whole life policy or getting taken by a shyster financial planner who wants to bulk you up in front load mutual funds.

One problem I do see is that about 27% of employers still don’t provide direct payroll deposit. I can also see some who do choosing not to participate in this plan just because they hate Obama or the government in general. Obamacare has been so well received, I’m sure employers can’t wait for more government sponsored programs.  If it’s complicated to use or requires purchasing software, that will also kick many small companies out of the loop. Right now, there doesn’t seem to be a self employed option either, although I bet if you set up direct deposit, you can participate. Although, if you are ambitious enough to do that, you might as well set up a solo 401k or SEP IRA instead.

I have to admit, since making some big financial changes in my life over the past few years, I have become a bit of a financial snob and want to get in people’s faces and yell at them to start planning for life and retirement (well maybe not right up their faces, but still.)  I think people need to be way above average with financial planning, but if I can get down off my high horse and realize that some people need to start by taking itty bitty baby steps in starting to save for retirement, I can see the beauty of myRA. I just hope that people can look around the fact that this is a government idea and ignore all the right and left shenanigans to see that this might be a great way to start if you fit the right profile.

What are your thoughts on myRA? Does the fact that Obama came up with it cause you to like or dislike it more? 

Image: Pete Souza/Wikimedia Commons via Creative Commons

About Kim Parr

Kim Parr is a private practice optometrist, freelance writer, and personal financial blogger. You can follow her journey to 20/20 financial vision at Eyes on the Dollar.

23 comments

  1. I “accidentally” watched the State of the Union, which led to my old ways of tweeting and posting about politics, which surprisingly led to more retweets and likes than I have had in a long time! Haha anyway myRA seems like a good option for people who otherwise have not started retirement savings or don’t know where to start. I don’t have any strong opinions on it, to be honest.

  2. Like DC, I don’t have any strong opinions going either way about myRA. If there are no other options or someone has not started saving yet, then this is probably better than nothing, correct?

    • That was my thinking. People SHOULD be way ahead of the game already on this, but they aren’t. If this helps get someone started, then by all means, I’m for that.

  3. I definitely take your points that we PF nerds are not the intended audience for this plan. But isn’t there a chance that after people start saving a few bucks a week into the G fund they will let themselves off the hook for participating in a 401(k) or opening an IRA? I hope that having to roll a MyRA into and IRA will jump-start people into investing, but what if it just makes them complacent about actually saving for retirement?

    • From my understanding, this plan is for people whose employers offer no type of retirement plan, so a 401k is not an option. Yes, people probably won’t go open an IRA if they choose to do this, but likely they wouldn’t have anyway. People who are really concerned will figure out how to save for retirement. Opening an IRA with Vanguard or similar is one of the easiest things on earth, but sadly, many never think they know enough to try and open one.

  4. I think the concept is good, but I am not sure how the execution will go. I mean, it is the federal government. This does just seem like a way the government can offload all of the bonds they have been buying. Yes, this does get people to start thinking about retirement, but how many of them will actually go ahead and roll the money into a Roth IRA? If they struggle to make the $5 contribution, then they won’t be able to do the contribution minimum for a Roth. I still think there are a lot of unanswered questions.

    It doesn’t matter to me if Obama or any other president came up with it. It is still the government trying to create a new program.

    • I can see people putting in $500 and changing jobs and then cashing it out. I think that happens with lots of people in lower income jobs who do manage to contribute a little to a retirement plan then move to a different job.

  5. “We’ll look at those people who would rather have their grandma give them an enema than study the stock market or types of IRA’s” ha ha! I’m somewhere in the middle of those two things. 🙂 I feel a bit indifferent about it. I think if it makes investing more user-friendly or as a way to get your feet wet, then I’m all for it.

    • At first I thought it was stupid, but there are tons of people who have no idea where to start and are not going to investigate on their own.

  6. So people can only save up to 15K total over the course of 30 years? Really?

  7. I don’t have any super strong opinions on it. I think any options like this to get people started are a great idea, no matter how small. People definitely don’t save enough or think about the future and retirement enough so this is a good idea for those beginners. I don’t think I’ll be utilizing such a thing but I don’t see anything bad with it.

    • I don’t see anything bad except the fact that people using this plan are probably behind on retirement savings. Allowing $15K is kind of like using a cup of water on a forest fire.

  8. I’ll admit to knowing nothing about this program. I’ve really tuned out listening to anything O says now. Is the program only available to invest in bonds…no stocks? If that’s the case, then it wouldn’t it bring a lower return over the long haul? For that reason, I wouldn’t be interested.

    • If you look at the average of the G fund, it was around 2% last year, but I think the 10 year average is about what you’d find in a bond fund. It is certainly not for me, but some people won’t go near the stock market, so I guess it’s a way around that.

  9. I don’t get this new account, if people aren’t even saving in a Roth IRA why will they save in this. You get government bonds, which means you’re loaning money to the government under the guise of retirement. This could be the trojan horse where government eventually seizes our 401K and converts it to this “safe” account for our own good.

    • I guess this type of account might work for those who find it financially difficult to open an IRA. The $25 does make it very easy to open. As for the last paragraph…I totally understand how you feel…sometimes I think I’ve become a financial snob on my high horse…standing on my soapbox lecturing others who aren’t as financially savvy.

    • Most people who might use this plan don’t know what a Roth is. I’d rather keep to my own account, but for people who are afraid of the stock market, at least it might get them started. I certainly hope the government leaves my plan alone.

  10. I think any investing tool that gets people thinking about retirement, who might not otherwise, is a good thing. 15k obviously won’t get you very far but it surely is a good start and can lead to more traditional investing. My 2 cents anyways.

  11. Even though I’m definitely one of those financial nerds who doesn’t understand why it’s so hard to open an IRA, I can totally grasp your point here. I’m just afraid the whole myRA thing is too small-time. If the government really wanted to help people save for retirement, they’d find a way to reduce the dependency on social security and make individual retirement savings mandatory.

    • I really wish we had the option of declining social security with proof of saving in a retirement account at least to the amount SS would provide. I do think mandatory retirement savings is a good idea, but after seeing how many people revolted against mandatory health insurance, I can’t imaging it would pass any time soon.

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