Content provided by Nate Wattier, Client Services Manager
Despite the overabundance of parentheses in the name, the new MyRA President Obama signed into creation in January seems (for now) to be fairly simple.
Who can participate?
The new retirement plan accounts are designed for low- to middle-income full and part time workers that do not have access to regular employer sponsored retirement plans. Employers who offer the program will not have to administer or even contribute to the participant’s accounts. All workers can invest in these accounts, even if they already qualify for an employer sponsored retirement plan as long as their household income falls below $191,000.00 per year.
How will it work?
Like a Roth IRA, savers will invest post-tax dollars and then be able to withdraw the money, tax-free, during retirement. Workers can keep accounts as they switch jobs and can even contribute into the same account from multiple employers. Withdrawals can be taken at any time, however, if interest earned is withdrawn prior the account owner turning 59 ½, it will be subject to taxes and a possible penalty. Unlike a regular employer sponsored retirement plan, there will be no administrative fees paid by the account that could eat into the principle which can be problematic, especially in smaller accounts. Once the account hits the $15,000.00 mark or has been open for 30 years, the account will need to be rolled into a private sector Roth IRA where it will continue to grow tax-free.
What’s the catch?
Here is where things go a little pear-shaped. Investments will only be made in government savings bonds. Since these bonds are backed by the federal government they will never lose their principal, but the chance of a big return is almost nil. The White House compared the returns to the Thrift Savings Plan’s Government Securities Investment Fund it offers to federal workers. The fund earned an average annual return of 3.6% between 2003 & 2012. Younger participants, who can normally stomach quite a bit of risk in their portfolios, may not be satisfied with the offering, especially when many are looking to maximize their account’s growth as much as possible to meet their retirement needs 40 years down the road.
Will it solve all of America’s retirement needs?
Not by a long shot, but I believe it is a step in the right direction for many who have no retirement savings at all.