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Obama’s New Retirement Account

Posted By Josh Moore on Sun, February 02, 2014 | Comments (10)

Obama's New Retirement Plan

This week during the State of the Union address President Obama announced his new retirement program (MyRA).  MyRA was implemented under executive order so unlike the proposed automatic IRA, Obama’s new plan doesn’t require legislation or congress approval.  MyRA is clearly a plan to start shifting retirement dollars into a government controlled fund similar to Social Security.  It is unclear how far these new retirement plans and proposals will go, but it is clear they are making headway – and anyone who wishes to keep the freedoms under current IRA law would be wise to protect it sooner rather than later.

MyRA stands for My Retirement Account but anyone who compares IRA rules with MyRA rules will end up calling the new plan “his retirement account”.  I say this because what MyRA essentially does is take money from under your mattress and give it to the government, in return you will receive little tax incentives (if any) and low returns that may not keep up with inflation.  Here is what we know so far about MyRA:

No Tax Deduction

The new plan will be offered under the familiar Roth IRA so contributions are made with after tax dollars and will grow tax free.  Just like the Roth IRA, distribution of  interest payments must be taken after the age of 59 1/2 if you want to avoid a penalty.  On the bright side, you can take your contribution back at any time and consider it a low interest loan to the Treasury rather than a retirement plan.

Traditionally, contributions to an IRA would be tax-deductible, so the retirement saver receives a tax break today and will trickle taxable distributions after retirement age.  Contributions to Roth IRAs are not deductible but they grow tax-free, so in a self-directed scenario one could receive a tremendous advantage from tax-free growth.  The MyRA plan takes away both Traditional and Roth IRA benefits.

Little to No Return

Unlike self-directed IRA plans, Obama’s new retirement plan will offer only one investment option – a low-interest Treasury Bond.  The White House claims “savers will earn interest at the same variable rate as the federal employees’ Thrift Savings Plan (TSP) Government Securities Investment Fund” (G-Fund).  According to tsp.gov the G Fund returned an annual average (as of Dec. 2012) of 1.47% over one year, 2.24% over 3 years, 2.69% over 5 years and 3.61% over 10 years.

The problem with such low yields in the MyRA plan is it defeats the purpose of a Roth IRA altogether – which is to MAKE money tax-free.  If the idea is for savers to stay in-line with inflation they would be wiser to just keep their money “buried in the yard”.  Just because the Administration plans to “aggressively encourage” employers and employees to take part in this new retirement plan doesn’t mean it’s a wise move for the end consumer.  To the contrary, when you look at MyRA vs the current Roth IRA, it insults the intelligence of future retirees who would be “encouraged” to participate.

The Risk

Simply put, the mission of the G Fund is to produce a rate of return higher than inflation without exposing risk.  Obama claims that the new retirement plan is backed by the government and will not lose its principal.  Although this sounds relatively safe, there is inflation risk, or the possibility that your investment will not grow enough to offset the reduction in purchasing power that results from inflation.  In other words, the price of milk, gas, corn, rent… may go up, but your MyRA will remain the same… The value of the dollar may go down, but your MyRA will have the same amount of dollars in it.

While self-directed investors capitalize on cost of living or market fluctuations, MyRA savers will be unable to do so with their retirement dollars.  Self-directed IRA investors who save enough over time and invest wisely have the ability to live off their retirement dollars without cutting into its principal, where the MyRA plan may end up providing a nominal/fixed income similar to a social security check.

What Do You Think about Obama’s New Plan?

From what we can tell Obama’s retirement account doesn’t seem to offer many incentives, so it’s hard to say how savers are
“encouraged” to sign up.  Will this start out with Union workers at first and later down the road attempt to switch existing Roth IRAs?  Aside from “helping” Americans save for retirement, what is the real motive behind these new retirement plans?  Is it simply to fund the U.S. Treasury?

10 Comments
  1. These Treasury bonds with variable rate are akin to U.S.Savings bonds that are totally worthless.
    She said there were no fees,what do you call a 10% early withdrawal penalty,another obama pie in the sky idea from the democrats like obamacare,3.2 million cancelled policies and counting
    You would be better off with your companies 401 plan or just buying stock…Thanks to the democrats ,all U.S.Bond investments aren’t worth the paper they are printed on.The Flim Flam Man in the White House can’t tax you enough,now he just wants you to hand your money over by payroll deduction,there is not a good business in this country that would be a part of that or offer that to their employees,they would just be condoning a crime on the people,their employees.His offer is a major sin,he should be arrested for promoting fraud.

    Comment by Life Ant — February 7, 2014 @ 2:18 am

  2. Furthermore, one could open the MyIRA with $25.00
    and deposit $5.00 every payday(4 or 2 or one payday per month?) The reporting requirements alone would be more than return on the investment in Treasuries.
    Of course the employer would be expected pay those costs. What a dim witted idea.!!!!

    Comment by Ralph Schneider — March 19, 2014 @ 3:24 pm

  3. You made some nice points there. I did a search on the issue and found most guys will consent with your blog.

    Comment by mulberry — April 23, 2014 @ 9:57 am

  4. The government has to get money from somewhere. Young people should sign up for this new plan because they won’t have social security.

    Comment by tory burch — April 23, 2014 @ 9:59 am

  5. Of course, the question is – how can you know when it’s time to buy stock
    and sell. Features of CRISIL Performance Benchmarking report.
    Statistics show that common stocks have an average annual
    return of about 14% since the end of World War II.

    Comment by kosares — April 28, 2014 @ 2:45 am

  6. This new plan is going to fail miserably just like the affordable health care act, it isn’t affordable and MyRA isn’t really mine. Government has become a huge oxymoronic WOMBAT: “waste of money brains and time”. They are too big and want to fix everything but the people who work in government don’t have any incentive to really fix anything, they have a job so why risk their neck asking questions and rocking the boat. Now they are forcing businesses, who actually do fix problems, to participate in their bureaucracy? What a joke!

    Comment by RedState64 — May 1, 2014 @ 12:15 am

  7. Hey Kosares, did you know that 67.38% of all statistics are made up on the spot?

    Comment by Josh Moore — May 1, 2014 @ 10:40 am

  8. Nice article, Josh, this is concise and relative to some of the big changes that are happening with individual retirement accounts.

    Comment by Paul Allen — May 7, 2014 @ 8:25 pm

  9. Furthermore, we know the G fund has been tapped at least 6 times since 1987 and is supposed to be made whole later. I’m not sure if that will be the case for myRA participants. Is this another government ponzi scheme to keep rolling social security? Just sayin…

    Comment by Paul Allen — May 7, 2014 @ 8:27 pm

  10. We need a leader to help kids today start saving and Obama is just the man for the job. If kids don’t save money for the future they will have nothing. This new plan is a great idea, it helps our economy and encourages kids to save money for retirement. Social security will not be around so they will need something solid. When my 401k turned into a 201k all I wanted was my money back, I wasn’t interested in huge profits, I just wanted my savings to be there for me when I retired. Now I can either accept the losses or take big risks to recoup. Obama’s new plan will not have the same risks that 401ks and IRAs have.

    Comment by Coach Carter — May 13, 2014 @ 8:01 pm

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