The Obama administration is scheduled on Wednesday to launch a retirement savings vehicle called "myRA," aimed at enrolling more Americans in a government-backed investment option.
In details provided by the White House on Wednesday, the retirement savings proposal would be similar to a Roth Individual Retirement Account, but with holdings backed by the U.S. government like savings bonds.
"MyRA guarantees a decent return with no risk of losing what you put in," President Barack Obama said in introducing the program on Tuesday night in his State of the Union Speech
About half of all workers and 75 percent of part-time workers lack access to employer-sponsored retirement plans, the White House said.
The problem I see is the rate of return will be so low that I'm not sure if it will make a difference.
And a lot of people don't trust the government as is, what would make them want to invest their future with them?
This will be a hard sell to most investors.
once the balance hits 15K, it gets moved to an IRA
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.
They need someone to keep purchasing bonds. POTUS is a lot of things, stupid, at least politically stupid, is not one of them.
think there's also quite a few who are entirely the opposite. If it's backed and guaranteed by the US government, many people will find that very attractive.
Right/Wrong, some people see it that way.
I haven't seen very many details about the plan but I'm already trying to figure out how I can use it to cram more money into my Roth IRA each year via some sort of rollover.
Even if they use 30 year US Treasuries, the return will be low as it is 3.68% today.
quote:So Obama's concept of "decent return" is 2.2% in a 2% inflation environment.
Obama's 'MyRA' retirement plans may have limited advantages
Published: Wednesday, 29 Jan 2014
By: John W. Schoen, CNBC.com Economics Reporter
As part of his pledge to help financially strapped American households, President Barack Obama will sign an executive order creating a new, simpler way to save for retirement. He dubbed it a "MyRA" account.
In his 2014 State of the Union speech, the president announced the plan "that encourages folks to build a nest egg" and "guarantees a decent return with no risk of losing what you put in."
The plans offer households with no retirement savings a place to start. But they come with some serious shortcomings compared to existing individual retirement accounts.
Are these better than IRA and 401(k) accounts?
Not really. Technically, these plans are going to fall under the rules for a Roth IRA, which means you'll pay tax on your contributions before you deposit the money into your MyRA. That means you'll lose the tax advantage of a traditional IRA. The original idea behind those tax rules was to let you shield income from the IRS during your peak earning years and then pay tax when you withdraw the money in retirement, often at a lower rate because your income is lower. You won't get that tax break with a MyRA
One of the main selling points, according to the White House, is that your principal would be preserved: "The account balance would never go down." But that's true for any saver who invests retirement savings into U.S. Treasurys. Like all bonds, you get all your money back if you hold onto it until it matures.
The problem with that strategy is that you'll give up a substantial return. Since the Federal Reserve collapsed interest rates to save the financial system five years ago, the return on a short-term Treasury bonds hasn't even kept up with inflation.
With a MyRa account, your money will be invested in the Government Securities Investment Fund available to federal workers. That fund has an average annual return for the past three years of 2.24 percent. As of December, the average annual inflation rate for consumer prices over the past three years was 2.07 percent.
According to the White House, some two-thirds of tax benefits for retirement saving go to the top 20 percent of the income ladder, and one-third goes to the top 5 percent.
Obama wants to limit the tax benefits to those top earners to 28 percent of what they set aside. And he's proposing a cap on tax preferred savings accounts of $3.2 million, which the White House thinks is all anyone needs "to fund a reasonable pension in retirement."