MyRA - President Obama's New Plan

[nvestysly]

This subject has the potential to get political so I'll post in the FIRE Related Political Topics.

President Obama's State of the Union Address mentioned creating MyRA to allow a greater number of Americans to save for their future.

Here's an excerpt from the President's Address:

Let's do more to help Americans save for retirement. Today, most workers don't have a pension. A Social Security check often isn't enough on its own. And while the stock market has doubled over the last five years, that doesn't help folks who don't have 401ks. That's why, tomorrow, I will direct the Treasury to create a new way for working Americans to start their own retirement savings: MyRA. It's a new savings bond that encourages folks to build a nest egg. MyRA guarantees a decent return with no risk of losing what you put in. And if this Congress wants to help, work with me to fix an upside-down tax code that gives big tax breaks to help the wealthy save, but does little to nothing for middle-class Americans. Offer every American access to an automatic IRA on the job, so they can save at work just like everyone in this chamber can. And since the most important investment many families make is their home, send me legislation that protects taxpayers from footing the bill for a housing crisis ever again, and keeps the dream of homeownership alive for future generations of Americans.

I'm curious to see how this proposal unfolds. My first reaction is anyone with earned income can participate in an IRA and/or a Roth IRA. I presume the MyRA will somehow be different but do we really need another program? I don't know. But my guess is no. In my experience, it's the age old "you can lead a horse to water..." Maybe the new program will attract some number of people to plan for their future. We can only hope so. But I'm frustrated with friends and family that don't save - I suspect MyRA won't change that.

 

[brewer12345]

DOA, as far as I can tell, just like about everything else he wants.

 

[gcgang]

How bold. MyRA. We are all going to live long and prosper now.

 

[Greencheese]

It's just the opportunity to buy T-Bills in a new way. I don't get what the goal of this is since people who aren't saving now are probably not going to be swayed by this...

 

[aja8888]

...........It's a new savings bond that encourages folks to build a nest egg.....

Don't we already have those?

And.... since the most important investment many families make is their home, send me legislation that protects taxpayers from footing the bill for a housing crisis ever again.

I thought Congress was already working on that

 

[easysurfer]

...........It's a new savings bond that encourages folks to build a nest egg.....

Don't we already have those?

And.... since the most important investment many families make is their home, send me legislation that protects taxpayers from footing the bill for a housing crisis ever again.

I thought Congress was already working on that

I think the good is maybe tracking the account values would be easier than how savings bonds are today. Plus, the intent I gathered is to fill a void for those with employers that don't offer retirement accounts.

Though the topic does involve retirement, I suddenly have this craving for toast, eggs and bacon for breakfast in the morning.

 

[Planner]

And if this Congress wants to help, work with me to fix an upside-down tax code that gives big tax breaks to help the wealthy save, but does little to nothing for middle-class Americans.

Does this make sense?

 

[pb4uski]

....And if this Congress wants to help, work with me to fix an upside-down tax code that gives big tax breaks to help the wealthy save, but does little to nothing for middle-class Americans. ....

Does this make sense?

Not really.

It is unclear to me as to what "big breaks" the president is talking about. Most savings incentives that I can think of apply regardless of wealth or income other than some with higher incomes are limited in the amount they can save on a tax-deferred basis.

The president later mentions saving for IRAs on the job. Every American that qualifies can open an IRA, they just need to get off their stupid a** es and do it. The opportunity is there for the taking.

End of rant.

 

[scrinch]

Originally Posted by nvestysly View Post
And if this Congress wants to help, work with me to fix an upside-down tax code that gives big tax breaks to help the wealthy save, but does little to nothing for middle-class Americans.
Does this make sense?

How about this? It gives everyone the chance to defer taxes on money they put in an IRA. Those who make more money have a higher marginal tax rate, and so they get to defer more tax on every dollar put away. But is the fix to levy higher taxes at lower income levels in order to even out tax deferral? Or to say that everyone gets to defer tax worth, say, 20% of what is put in an IRA each year? Or...?

I'm not sure how great an investment T-Bills would be at these times of historically low interest rates. Maybe they'll make I-bonds or TIPS available in MyRA. Getting people to think about and invest in their retirement is a good idea...I'm just not sure a MyRA is needed to encourage it.

 

[pb4uski]

While I can see that if you compare two people who max out their 401k and/or IRAs that the higher income person gets a larger tax benefit from the same amount of deferral/contribution the fact remains that the higher income person is still paying more taxes.

The middle income person is able to save a higher percentage of their income on a tax-deferred basis than the higher income person (if they chose to do so).

 

[Major Tom]

My first reaction is anyone with earned income can participate in an IRA and/or a Roth IRA. I presume the MyRA will somehow be different but do we really need another program? I don't know. But my guess is no. In my experience, it's the age old "you can lead a horse to water..." Maybe the new program will attract some number of people to plan for their future. We can only hope so. But I'm frustrated with friends and family that don't save - I suspect MyRA won't change that.

My thoughts too. You can bend over backwards trying to persuade people to save and plan for the future, but you can only do so much. The main news and information portals on the internet (such as Yahoo) are already brimming with articles on saving for retirement. I don't think I have ever seen so much general information on the subject in mainstream media. Even if it much of it is fluff, it at least gets the subject out there. If after all this, people still don't save, then the only logical step, IMO, if you're committed to trying to save people from themselves, is an expansion of the SS system. I am not particularly in favor of that - just observing that at some point, after creating ample opportunity for individuals to help themselves, sometimes you just have to step back and let them suffer the consequences of their own actions if they choose not to do so.

How about something less drastic (and probably a lot easier to pass) such as a substantial increase in contribution limits for IRA's to bring them more in line with the limits for 401(k)'s, in order to help those who aren't able to take advantage of 401(k) plans through their employer?

Of course, there is no limit to how much anyone can save in a taxable account and although we all know the advantages of tax-deferred investments, a nice tax-efficient fund held in a taxable account can work wonders for retirees - as many here already know.

 

[AndrewJackson]

So is there anyway to abuse this and funnel money into roth IRAs where you can then invest it how you see fit?

 

[Dash man]

Reading between the lines, I think he may be looking at finding a way to bump up the savings of the middle class with a government contribution to the MyRA the higher income folks won't get. He's been talking about income inequality, so this may be one approach to attacking that. The House will never buy into it, but he might try through other means.

 

[2B]

Isn't this the "personal accounts" Bush was talking about?

From a purely financial standpoint, having people save by only buying treasuries is pretty weak. Is there concern that with the Fed taper there won't be enough buyers of treasuries? The line "We're from the government and we're here to help" has been a joke for really long time. I can't see where having people limited to treasuries is the way to fund their retirement.

If the federal government wanted to give people better opportunities to save for retirement, open up the TSP to everyone. It has lower cost index funds than Vanguard. Let employers set up contributions by payroll deductions and provide matching if willing. Now that would be a good proposal.

Unfortunately, people that don't save now will probably not save under this plan. Maybe we could make it mandatory. Oh wait, we already have that. It's called social security. With SS the higher income earners receive a lower replacement rate than the lower income earners. That already is an attempt by the governement to address "income inequality." Taxing the benefits also reduces the net income of higher income SS recepients.

 

[foxfirev5]

"... a decent return with no risk." If it sounds too good to be true it probably is.
There are plenty of ways to save and invest now. Creating another program won't accomplish anything .

 

[jon-nyc]

Some additional details were released this morning.

Those accounts would be available to households earning no more than $191,000 a year. Businesses will need to register in the pilot program by the end of the year for their employees to participate voluntarily.

Investors would earn a variable interest rate equal to the Thrift Savings Plan, or TSP, which is available to federal employees. Contributions could be withdrawn tax-free at any time.

Initial investments could be as low as $25, and contributions as small as $5 could be made through payroll deductions.

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

Obama to launch government-backed retirement savings program - Yahoo Finance

 

[jon-nyc]

That 15k limit isn't an annual limit, it's a total limit. This is clearly something designed to encourage small-scale saving by people who presumably aren't doing so today.

I would say its of little or no interest to the ER crowd, except as a potential place to store part of your emergency fund for a better-than-market interest rate.

http://www.businessinsider.com/obama-myra-retirement-heres-what-you-need-to-know-2014-1

 

[Htown Harry]

This subject has the potential to get political...

Wow, ya think?

I'm somewhat amazed at the speculation and strong opinions posted so far. The details of the proposal haven't even been announced yet!

When I do see more, I'll include a look at the idea from the perspective of a 25 y.o. construction worker or store clerk before passing judgment.

 

[Dash man]

That 15k limit isn't an annual limit, it's a total limit. This is clearly something designed to encourage small-scale saving by people who presumably aren't doing so today.

I would say its of little or no interest to the ER crowd, except as a potential place to store part of your emergency fund for a better-than-market interest rate.

http://www.businessinsider.com/obama-myra-retirement-heres-what-you-need-to-know-2014-1

It looks like there will be an added expense to the taxpayers to pay for the interest premium these accounts will be getting. [mod edit] By itself it may not be a huge sum (if you can call a couple billion not huge), but it's one more program to add to the country's debt load. And this program is likely to grow over time.

 

[MichaelB]

This is an interesting topic and lots of members will want to share their thoughts, but that can only happen if we leave out the general political comments and stay on topic.

 

[nvestysly]

That 15k limit isn't an annual limit, it's a total limit. This is clearly something designed to encourage small-scale saving by people who presumably aren't doing so today.

I would say its of little or no interest to the ER crowd, except as a potential place to store part of your emergency fund for a better-than-market interest rate.

Here's What You Need To Know About MyRA - Business Insider

From the businessinsider article:

Accountholders could accrue balances of up to $15,000, at which point they'd have to roll the balance over into a regular, private Roth IRA. Voluntary rollover and withdrawal would be available anytime, and it looks like normal Roth IRA withdrawal penalty rules would apply.

Yes, I see how it might mean a total of $15k. However, it might also mean that you can only have a maximum of $15k at any point - then you roll that over - and start at zero again. If it's truly a maximum limit (forever) that doesn't sound like much money. For some people that amount would be the equivalent of 1 year of pay in which case it is a relatively large amount. But if MyRA is available to household incomes up to $191k then it's not exclusively for the low wage earner.

I hope more details are released soon.

 

[Gatordoc50]

Those who value the opportunity provided by this or any other legislation will take advantage of it. It's an additional way to diversify. I have learned not to look the gift horse in the mouth.

 

[dontworry]

I believe anything that makes it easier for people to save is a step in the right direction. The people on this board are just a very small slice of the general population. There are many who never make over $25000 or $30000 a year (or even less) and life is difficult for many, many folks. Setting up an IRA sounds easy to those of us here, but not so easy for everyone to do (especially without falling prey to the many financial advisors who will take their share).

 

[2B]

I can't see any reason to sign up for a MyRA unless there is a rich government match and seriously subsidized interest rate. I have trouble seeing why anyone would choose on their own to sign up but it sounds like employers will be [-]forced[/-] encouraged to sign up employees. I assume there will be an opt out option for employees.

People without 401ks are able to have deductible IRAs unless they have very high incomes. I suspect most low income individuals would be better off with Roths unless there is a big fed contribution but that's another discussion. The lower income people aren't doing this now in significant numbers. I don't want to say they don't understand the need to save for retirement. I just think they have other priorities. Possibly, it could be food and shelter but it very well could be iphones, booze and drugs.

I have a hard time seeing where just increasing the SS tax rate wouldn't do the same thing financially for lower income individuals. The downside is it would politically be a clear "tax increase" versus an automatic enrollment in a Treasury Department plan. It seems to me that Congress would have to implement the MyRA or the SS increase. I could be wrong.

If I was a member of Congress, I'd have a hard time choking down how this really benefits anybody in a meaningful way. Politically, how serious is the Obama admistration going to push this? There were many other items brought up in the speech that would seem to me (IMHO) more significant to furthering his agenda as I see it than this. Of course, this is so minor nobody may care enough to fight against it.

 

[rodi]

Pluses:
- It gives everyone access to the equivalent of the TSP G fund. I don't currently have that and would like that. The government would borrow some of their money through this MyRA fund, like they do with the G fund.

- I think most of us know cash strapped folks who are unwilling to commit to a significant retirement savings because they feel they don't have the bandwidth. This starts the process for them, even if it's just a token. $5/month should be something even the most cash strapped should be able to do.

- For me - having another spot to save is good. Is this a front door Roth path?

Minuses:

- Government has slightly higher interest rates for a *SMALL* portion of their debt (by percentage) by shifting some borrowing to this G-fund like instrument away from traditional short term debt.

- Another set of rules/implementations have to be created/debugged/implemented by the IRS/Employers. That has a cost to taxpayers.

- It's unlikely to change the behavior of very many people. Savers will take advantage. Spenders will still find reasons not to save.

Since the POTUS is doing this by executive order it will happen. Can't call it DOA.