In his State of the Union Address at the end of January, 2014, President Obama proposed a new retirement plan called “myRA.” Designed to help increase retirement savings for Americans who do not have a workplace retirement plan, “myRA” is described by the White House fact sheet as a “simple, safe and affordable starter plan.”
The fact sheet describes four basic features of myRA plans:
Safe and Secure – Plan contributions will be invested in government securities similar to savings bonds. The investment plan is patterned after the Government Securities Investment Fund, a part of federal employees’ Thrift Savings Plan. The government plan paid 1.4% in 2012. Previously, it had paid over 3%. The myRA investments are designed to produce a modest, but very secure, return.
Contributions – Participants may make contributions of as little as $5 or $25. The contributions will be made on an after-tax basis, similar to Roth IRA contributions. The myRA will not be available for upper-income workers, and the limits will be the same as those for Roth IRAs.
Fund Limits – Once a myRA reaches a fund balance of $15,000, the owner of the account will be required to move the balance to a Roth IRA, and to invest it with a financial service organization which can offer comparable service and multiple investment options to an individual with that fund balance.
Goal – The primary purpose of the myRA is to encourage lower income workers to start saving for retirement.
Although the myRA and Roth IRA are both plans with a good purpose – to help regular Americans save for retirement – the primary challenge for those with moderate incomes will be that the majority of these Americans have very limited means available for retirement savings. It will be most important for these workers to obtain education in financial management skills so that there are more funds available for retirement savings.
– Heinz J. Brisske