The year 2017 will bring a lot of change to the United States. New jobs, new opportunities, new markets, new goods, and a new “retirement savings vehicle” – the myRA. Obama wanted to help Americans save for retirement so he did what any person would do. He created a product to help. But in the grand scheme of things, does a myRA help? First, let’s figure out what in the world is a myRA.
In short, it is a savings bond (think of grandma and grandpa going to the bank in the 20s-50s putting their money in a very, very safe account which grows very, very slowly) which is meant for people to build a nest egg. Now when you think of a nest egg, what number comes to mind? Do you think of $100,000 or $250,000 or maybe $1,000,000? How about $15,000? That’s right, this program will help you build your nest egg of a whopping $15,000! Now let’s be real. This retirement plan is built for folks who:
- don’t have access to a retirement plan at work
- make low incomes and
- need help saving and can only save a few dollars each paycheck
In order to qualify to contribute to the account you need to make less than $132,000 (single, head of household, or married filing separately) or $194,000 if married filing jointly. Once you surpass those limits, you are no longer eligible to contribute to that account and need to roll it over to a Roth IRA. BUT WAIT, once you roll it over to a Roth IRA, can you still contribute to that account? Yes. Until you make $133,000 (single, head of household, or married filing separately) or $196,000 married filing jointly. So if you want to keep the perks of these accounts, don’t go out and make more than that. BUT WAIT, are there any more “gotchas” within those accounts?
Of course there are…
Your myRA cannot exceed $15,000 total. Once it does, it then automatically gets rolled over to a Roth IRA, which will then sit there for your entire working career unless you want to pay a penalty on accessing your own money before “retirement age”, (which is a joke in itself, for another time) with a few exceptions.
I want to MAX OUT my (Roth) IRA/myRA. Great! So let’s say that this year you earn a nice, even $100k and you MAX OUT your IRA contribution at $5,500 (and you are under the age of 50). You are saving a whopping 5.5% of your income. HEY! You are beating the average of 5.4% of household savers! But you aren’t playing the game of life and finances to be average.
This is a “risk-free” retirement account so you need to understand risk/reward and standard deviation. I’m not going into that today, however think of this: you keep your money in a savings account at a bank, right? What is the risk of losing your money? The bank goes under? Bonnie and Clyde come swooping through and clean it out? Luckily it is FDIC insured (hopefully), and your money is protected. How is that interest rate on your savings account? Pretty high, right? What do you mean you are not getting 8% on your savings account? That’s what we got back in 1992. Your risk-free myRA has one “investment option”; a special U.S. savings bond that invests in Government Securities similar to that of a TSP (Thrift Savings Plan).
Don’t plan on having this account in retirement especially as our generation starts living and working longer in our lifetimes. You HAVE to take the money out or roll it over after 30 years.
In short, the government believes that your money is put to better use in their hands and they will give it back to you in 30 years after the cost of living has eaten away at how that account spends. Oh, and lastly, what else do you think the Fed was going to do with all those Treasury bonds they have been buying up over the last 8 years to spur economic recovery? They have to offload them somehow. Welcome to your new government sponsored retirement plan – The myRA.
Hey, if you have found this article valuable, share it with others so they are aware of what’s coming up in the near future. Knowledge is power, so spread it and empower those you care about.