Following up on a State of the Union promise, President Obama officially created the MyRA — "my retirement account" — today, a new way for companies to encourage retirement savings by their employees. What is it? Do you want it? The Wire tried to find out.
One of the best existing resources on the MyRA comes from The Wall Street Journal, which put together a nine-part list explaining key details of the accounts. In short, the MyRA takes contributions as low as $5 from people who make $191,000 a year or less, and invests them in government bonds. There's a guaranteed (and modest) return on the investment, and it can be transferred between employers, since the government administers them. Once an account hits $15,000, though, it must be rolled into a Roth IRA — a more complicated investment product. But that's the goal: get people on the path to serious, long-term retirement investments.
The best way we could think of to assess the MyRA as a retirement product was by putting together a table comparing it with other retirement options, evaluated on a number of factors.
- Are contributions taxed? Usually contributions to retirement plans are taxed before being put into a plan, to eliminate taxes on withdrawal. The MyRA operates that way.
- Can the contributions be automatically deducted from a paycheck? MyRA contributions can be.
- Can the employer contribute? It's not clear if employers can contribute to MyRAs, but they probably won't.
- Is there a guaranteed return? Some retirement plans, like pensions, essentially guarantee a return — which is why many versions are called "defined benefits" plans.
- How high is the risk? A key consideration is the likelihood that those funds will still be around by the time you retire. 401(k)s and IRAs allow you to invest, introducing risk.
- Is there a penalty for early withdrawal? Sometimes, you want to get money out of your retirement account early, which often incurs a penalty.
|Product||Taxed?||Automatic deductions?||Employer contribution?||Fixed return?||Risk?||Penalty?|
* There are a lot of products that offer a lot of different things. Consider this a general guide. If you are using this chart as your only tool for planning your retirement, you will starve to death before your 66th birthday.
There's a lot to fight about in those evaluations (especially the Social Security one, which you are welcome to argue about in the comments). But in general, the MyRA is exactly what it says on paper: a way to get people into the habit of saving for retirement with a very low barrier to entry. Is it for you? Well, do you need to get into that habit? If so, yes. If not, no.
See how easy that was?