Now that we are in fullswing tax season, the subject of a MyRA account is a topic of discussion.
If you watched the President’s State of the Union Address recently, you saw him talk about a new retirement savings option called “MyRA.” The idea is to provide an option for those who are not covered under an employer retirement plan to start saving for their retirement.
So, let me cover some of the basics of this program as we know it today.
As long as you are earning less than $191,000 per year and you are not covered by an employer plan, then you can set up and contribute to your own MyRA plan. You can invest as little as $5 per contribution, and the money is invested in a Treasury Bond portfolio. You receive no tax deduction upfront, but it is tax-free going forward, like a Roth IRA, and when you get to $15,000 in the account, you MUST move the money to a Roth IRA.
Now, let’s talk about why you wouldn’t be interested in this type of program.
1. It forces you to invest your deposits into Treasury Bonds. When you buy Treasury Bonds, you are loaning the federal government money. Is that a good idea right now? Do you really want to loan money to an entity that is wildly irresponsible (fiscally speaking) and then get paid very little in return?
2. It limits your investment options. Treasury Bonds, that’s your option. Nothing else, just that.
3. It provides nothing you cannot do already. Roth IRA’s allow you to do the exact same thing as a MyRA, but with the enormous benefit of having the freedom to select almost any investment inside. Thousands of options are available. So I ask you, if you have two accounts that are identical and one forces you to select only one investment option, and the other allows you to invest in essentially the same option plus thousands more; which one are you going to choose?
My prediction is that our government will waste time and energy getting these things up and running, and then fail when it tries to compete with the private sector. I expect the MyRA to be created with much fanfare, and then fade away when very few people actually use it.
So why would our government want to roll out this type of program to begin with? Well, you can probably already guess the answer to that. If the government can get people to give them money and they only pay a small amount of interest to the investor, the government now has a good source of cheap money. Now, what do you think the government will do with this extra money?