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How Does The My RA Work?

Trapped in my office by the Snowpocalypse that hit Atlanta on last Tuesday, I had the opportunity to watch the State of the Union (#sotu) Address delivered by President Obama.   There is a whole lot of financial topics we could talk about on Your Smart Money Moves, but I’d like to review the topic around the new proposed investment vehicle called the MyRA.  Since we already have the SEP-IRA, SIMPLE-IRA, Rollover IRA, Roth IRA, Traditional IRA, Beneficial IRA, etc., wouldn’t it have just been easier to call it the My IRA instead of the new urban dictionary word called MyRA?

The concept behind the MyRA account would be a new type of bond within a Roth IRA-type umbrella.  Contributions would not be tax-deductible, but earnings would be tax-free when you withdraw it in the future.  It’s unclear about how closely the rules on this account shadow the rules of the current Roth IRA.

The investment vehicle would be a new savings bond with its principal guaranteed by the good old U.S. Government, much like regular U.S. Savings Bonds.  It is proposed that the bond would earn the same variable interest rate as Government workers earn within the current Thrift Savings Plan (the Government version of the 401(k)).  This current rate would be 1.74%.  Congratulations on safely losing your money against the rate of inflation every year!

The primary impetus behind this is that folks who are less fortunate have an affordable way to save for their retirement.  The minimum investment is proposed to be $25 and investments could be as small as $5 through your company payroll deduction.   Does anyone wonder if the Government will accept money orders from 7-11 from those less fortunate?  How about cash?  With current rates and the rule of 72 it will only take 39 years or so to double your money.

The only information we’ve seen so far is that families can contribute to the MyRA that make up to $191,000 a year.  You will be able to put away up to $15,000 into the account no longer than 30 years and then you’ll have to roll the money into a Roth IRA.   My guess is that the tables will look exactly like the Roth IRA contribution limits as seen below for 2014.

If your filing status is… And your modified AGI is… Then you can contribute…
married filing jointly or qualifying widow(er) < $181,000 up to the limit
> $181,000 but < $191,000 a reduced amount
> $191,000 zero
married filing separately and you lived with your spouse at any time during the year < $10,000 a reduced amount
> $10,000 zero
singlehead of household, ormarried filing separately and you did not live with your spouse at any time during the year < $114,000 up to the limit
> $114,000 but < $129,000 a reduced amount
> $129,000 zero

(Source: www.businessinsider.com)

Not all the details are out, but my initial analysis says WhyRA to the MyRA?   If you can afford a Roth IRA and you are really worried about costs, there are many mutual fund companies that offer low initial monthly investment plans from $25 to $100 a month if you put money away on a systematic basis.   If you are saving money for retirement, even for those less fortunate $5 increments at 2% a year aren’t going to get you to your goals.   It might have made more sense to set the bundled MyRA up with allowing all five of the Thrift Savings Plan Options (Government Fund, Fixed Bond Fund, Common Stock Fund, Small Cap Fund, and International Fund) to at least give the lay person starting to save a number of different options.

How much do our leaders know about retirement savings? “(The MyRA) guarantees a decent return with no risk of losing you put in” said President Obama.   Mr. President, every investment carries risk and it just happens that inflation risk will eat this one alive.

Written by:
Ted Jenkin

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About the author  ⁄ Ted Jenkin @ Your Smart Money Moves

Ted Jenkin @ Your Smart Money Moves

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Ted Jenkin is a frequent guest columnist for the Wall Street Journal and Headline News Weekend Express. He is the co-CEO of oXYGen Financial. You can follow him on LinkedIn @ www.linkedin.com/in/theceoadvisor or on Twitter @tedjenkin.

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The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor regarding your individual situation. 

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7 Comments

  • Avatar
    Tom
    February 11, 2014

    “an annualized average return from 2003 to 2012 of 3.6%” is pretty good. Not losing is winning. Consider the strong possibility equity market will likely lose big like -15% this year.
    MyRA is an excellent idea. It is like catching two birds with one stone.

  • Ted Jenkin @ Your Smart Money Moves
    February 13, 2014

    Appreciate your opinion on the topic. What happens once you factor in inflation over that same time frame?

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