Should You Use Obama's MyIRA?
Find Out If the MyIRA Plan from Obama is a Good Idea For You
President Obama unveiled a retirement savings account, the MyRA, during his term that can benefit certain U.S. citizens.
Similar to the 401(k) and Individual Retirement Account (IRA), Obama's savings vehicle was initially rolled out as "a new way for working Americans to start their own retirement savings."
MyRA a Positive Alternative to Workers With No Other Option
For workers with no employer-sponsored retirement plan, such as a 401(k), and with very little money or knowledge to start their own investment accounts, the MyRA option can be a good start.
Here are some of the key features of the MyRA:
- Workers can have part of their pay deducted for deposit into an account invested in U.S. government bonds.
- For tax purposes, it would be treated the same as a Roth IRA (tax-free earnings but not tax-deductible contributions).
- Available to people with annual household income up to $191,000 whose employers choose to participate.
- Initial investments can be as low as $25 and payroll contributions as low as $5.
- The plans are set up through the US Treasury Department.
- Maximum balance of $15,000, after which money would have to be rolled over into a private- sector Roth IRA.
Who Can Benefit from the MyRA
The key benefit to the MyRA, other than the primary purpose of saving for retirement, appears to be the accessibility. Most mutual funds have minimum initial deposits of more than $1,000, which is not affordable for many Americans. Also, the investment in U.S. Treasury Bonds may not be the ideal long-term investment but it is arguably more appropriate for beginning investors than leaving them at the whims of the market risk associated with stocks, which can be detrimental to a beginner's psyche, to say the least.
Another benefit of the MyRA is transferability. Like other retirement plans, the MyRA can be rolled into another retirement account, specifically a Roth IRA, which has more flexibility in terms of investment choices and custodian than the MyRA.
Although the MyRA may not be the ideal retirement savings vehicle for all Americans, it can be a wise choice for beginning investors who might not have the means of getting started on their retirement savings.
For those fortunate Americans who have access to a 401(k) plan through their employer, the MyRA may not be the best choice, especially if the employer offers matching contributions. For those savers who are knowledgeable of investing and retirement savings basics, a traditional IRA or Roth IRA can be a better choice.
The bottom line is that the MyRA can be used as a beginning point for savers who are not comfortable using traditional and Roth IRAs. One of the most difficult steps in the financial planning process is just getting started and this new MyRA plan appears to be just that: a start.
Updated October 15, 2017, by Kent Thune.