MyRA - President Obama's New Plan

[mpeirce]

It sounds like a ROTH that has no option for investing in the stock market. These folks would be so much better off if it invested in a Total market index fund over their lifetime.

The only advantage I can see for people is if either there is some government match (that mimics 401(k) employer matching) or it somehow entices folks who aren't saving at all to start saving.

I suspect adding ANOTHER type of tax advantaged account will simply make it more confusing to the target audience (people who don't already use the existing accounts).

 

[growing_older]

So much depends on the rules and details that have not been released yet.

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.

Depending on how this is implemented, it could be a way to backdoor 15,000 into a Roth IRA, possibly more than once as long as it is done in 15,000 chunks? If so, I can see lots of people who are not the target demographic small savers being very interested in doing this. Too much depends on details we don't know (and may not yet be decided) to really understand how this will work.

 

[easysurfer]

It sounds like a ROTH that has no option for investing in the stock market. These folks would be so much better off if it invested in a Total market index fund over their lifetime...

I had a similar thought..

It made me think about HSAs and whether the majority of folks with HSAs use the money as an investment in the stock market or use the money like a savings account with the debit card option.

 

[GrayHare]

Yet another form of IRA is as welcome as a viewing of MyRA Breckinridge. Instead, simply let those who can make a tax-deductible tIRA contrib do so and, if they wish, immediately invest it in "Fed IRA Bonds" that pay X% more than Treasuries. AFAIK that accomplishes the goal of the President in a simpler fashion.

 

[ERD50]

No surprise, but I agree with the skeptics here.

When listening last night, I literally cringed when I heard these words:

guarantees a decent return with no risk of losing what you put in.

I hate that this reinforces the idea to the general public that you can have your cake and eat it too. Note how in his speech, he earlier mentions how the stock market has doubled in the past 5 years, and then talks about 'decent returns' in this plan. Of course there was no direct tie in, but I think it creates a mind set for the listener. How do the inflation adjusted returns of a 'no risk' plan compare to the same returns of a balanced fund?

Higher reward means higher risk (or at least higher volatility). Implying to people otherwise is.... OK, I'll self-moderate here.

-ERD50

 

[easysurfer]

From Marketwatch: Will the ‘myRA’ retirement plan take off?

The plan, which Obama dubbed the “myRA” (rhymes with the initials “IRA”), is designed to create “starter accounts” that would help novice investors avoid some common pitfalls of retirement savings.

But what Levine and others want to know is how long someone would have to hold a myRA before they can roll the money into their traditional IRA or other retirement account. “If the hold time is too long, I think it will diminish a lot of interest, as savers may choose to invest their money in something other than government bonds,” he said.

Will Obama's 'myRA' retirement plan take off? - Encore - MarketWatch

 

[sengsational]

NOT thinking yet another government program is the answer...but taking on a glass half-full, non-personal gain perspective...

Say a young, non-saver puts a modest amount in MyRA as a rainy day savings (knowing they can get most of it out penalty-free if they need to). Some fraction never have a rainy day and reach $15k. Then they set up a periodic transfer to an investment account that has more risk, but also more growth potential. They still have their $14K or $15K rainy day money, but they've got the "overflow" in, say, equities.

Sounds like a way for younger, low earners to start with an asset allocation that lets them sleep at night (100% 'cash'), and slowly grow into an AA that has the potential to grow faster than inflation. And they can do that when they can 'afford' to (once the rainy day account is funded).

 

[Midpack]

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

+1. CBS reported that in the 2013 SOTU last year Pres Obama offered up 41 programs he'd like Congress to act on, only 2 were adopted. This was the first SOTU in my entire adult life that I didn't even tune in, it's all just talk nowadays.

 

[Mulligan]

I would assume you have to use earned income like you presently have to do with a Roth? The links did not mention this. But if you didn't need earned income I would dump 10k of my pension money into it to draw the interest tax free.

 

[F4mandolin]

No surprise, but I agree with the skeptics here.

When listening last night, I literally cringed when I heard these words:





I hate that this reinforces the idea to the general public that you can have your cake and eat it too. Note how in his speech, he earlier mentions how the stock market has doubled in the past 5 years, and then talks about 'decent returns' in this plan. Of course there was no direct tie in, but I think it creates a mind set for the listener. How do the inflation adjusted returns of a 'no risk' plan compare to the same returns of a balanced fund?

Higher reward means higher risk (or at least higher volatility). Implying to people otherwise is.... OK, I'll self-moderate here.

-ERD50

The G fund in TSP. A decent return (I think it's 2.25% now) and no risk.

 

[aaronc879]

I like the idea of a 'G-Fund for all'. If that's what this is. It'll encourage the "little people" to invest knowing that they don't have to worry about possibly losing a large percentage of their limited money by investing in equities. At the same time getting much better returns than a regular bank account savings or short term CD. The term "decent return" is relative. Some may think 2% is far from decent and that's fine but it's guaranteed not to be negative. Where do I sign up?

 

[karluk]

The G fund in TSP. A decent return (I think it's 2.25% now) and no risk.

If that's what the actual proposal is, and early reports indicate it is, then I'm not seeing a lot of downside to this. True, young workers should really be primarily in the stock market, but the lure of higher interest than is available elsewhere may very well get some people who aren't currently contributing to their retirement to begin.

The reports I've read also indicate that this can be done via executive order, without action by Congress. If so, the objections that Congress is unlikely to go along with any Obama proposal disappear.

In a lot of ways, this proposal has a similar flavor to way back when the Treasury began offering I-bonds in addition to series EE savings bonds. I-bonds have become a standard part of many people's investments and so might these new MyRA accounts. They shouldn't be the only component to retirement savings, but they may very well be a part of it.

 

[haha]

I like the idea of a 'G-Fund for all'. If that's what this is. It'll encourage the "little people" to invest knowing that they don't have to worry about possibly losing a large percentage of their limited money by investing in equities.

If I am understanding it, it will also be a guaranteed government controlled funding mechanism for the Federal government.

Ha

 

[RunningBum]

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.

That's why I'm watching, to see how it might (or might not) benefit my 23 yo son who is still looking for his first real post-college job.

 

[ERD50]

The G fund in TSP. A decent return (I think it's 2.25% now) and no risk.

1.47% in 2012, 2.45% in 2011. Both lagged CPI (1.7% and 3.0% respectively), so I don't think 'no risk' is appropriate - these people lost buying power, and that is the risk. And I don't think negative real returns are 'decent'. It may be the price someone is willing to pay to remove other risks, and that can make sense in some situations.

I like the idea of a 'G-Fund for all'. If that's what this is. It'll encourage the "little people" to invest knowing that they don't have to worry about possibly losing a large percentage of their limited money by investing in equities. At the same time getting much better returns than a regular bank account savings or short term CD. The term "decent return" is relative. Some may think 2% is far from decent and that's fine but it's guaranteed not to be negative. Where do I sign up?

I also like the idea of offering a set of funds that meet certain criteria with standardized labeling, and some sort of 'stable fund' should be a part of that (this should apply to all IRA, 401/403's etc). But people should have a choice, even if they need to take a little quiz or something to establish they understand the risks. People who want to invest in funds that may not keep up with inflation should understand those risks as well.

-ERD50

 

[meierlde]

Actually this is another behavioral economics step. The first was auto signup for 401ks which it appears most companies that have 401ks now do (you have to opt out to avoid it). However if your employeer does not have a 401k there is no auto enrollment for those workers. Behavioral economics teaches that making things opt out instead of opt in causes greater participation because folks tend to not take actions.
So its only for those folks that are not proactive about their futures. (Which sort of excludes everyone on this site)
Studies have shown for example that if you are signed up when you start work you will likely not miss the amount taken out as much, just like if the contributions step up as you get raises.

 

[rodi]

+1. CBS reported that in the 2013 SOTU last year Pres Obama offered up 41 programs he'd like Congress to act on, only 2 were adopted. This was the first SOTU in my entire adult life that I didn't even tune in, it's all just talk nowadays.

As I said above. It's being done by executive order. So it's not dependent on congress... and therefore not DOA.

Similar to when Bush Sr (41) offered to let folks have a little more cash in their paychecks each month, in a SOTU address. Since he wasn't changing tax code, just withholding, he could do it. Folks were unpleasantly surprised when tax time came around and they weren't getting refunds.

The POTUS has some powers. It's up to us to figure out how to mitigate or take advantage of changes implemented by executive order. In my case, in the example above, I increased my withholding and broke even tax time. (Most of my friends were scrambling to come up with money to pay their tax bills they hadn't counted on.) In this case - I'm looking at how I can turn it into a personal backdoor roth - since I have rolled IRAs precluding me from doing it the other way.

 

[aaronc879]

Even though i'm a low income worker it doesn't look like i'll be eligible for this because it's only offered through your employer. I'm a independent contractor and therefore have no employer. So even though I only made $16K in 2013 and will likely remain below $25K/yr from now on, it doesn't look like i'm eligible.

 

[haha]

Even though i'm a low income worker it doesn't look like i'll be eligible for this because it's only offered through your employer. I'm a independent contractor and therefore have no employer. So even though I only made $16K in 2013 and will likely remain below $25K/yr from now on, it doesn't look like i'm eligible.

All hail to the centrally planned economy!

 

[M Paquette]

Unlike conventional IRA accounts sold in many places, there isn't a minimum amount to open the account. The common $3,000 opening deposit can represent the income from multiple months of work for some full time workers. I've found a few accounts with lower minimums, with The Usual Suspects that have [-]fees[/-]strings attached.

The idea here is that a low income worker can still have access to a long term savings vehicle and get in the habit of setting aside a small percentage of their income for retirement. While a laudable goal, I don't see the local Burger Thing deciding to offer these to their staff.

(The local firm that runs many of our fast food outlets has been trying to make all employees 1099 contractors, while still controlling their hours. They're quite upset that the nassty old IRS won't let them do this. The owner keeps whining about this at every opportunity.)

 

[ERhoosier]

Recent article on no-fee/low min IRA's
401(k) Rollovers: How to roll over a 401(k) to a No Fee IRA | NerdWallet Investing

FWIW- IMHO myRA is nothing but a political stunt. I don't see how this program will suddenly cause large # of folks to suddenly begin saving. Most anyone (employed or not) can already open a Fed-insured savings acct at local bank or credit union for regular saving deposits then roll over to Roth when they get large enough balance. Access to TSP interest is simply too little to make much difference.

 

[MichaelB]

Perhaps when details are released the topic can be revisited.