So Obama is planning on asking the Treasury Department to implement MyRAs, which are like Roth IRAs except don’t have any fees and can only be invested in Treasury instruments. The maximum total investment is $15,000 after which it must be converted to a regular Roth.
I don’t think this is that great an idea. I’m not opposed to Obama implementing this by executive order because this is not that different from TreasuryDirect, which is also a program which you can use to purchase Treasury instruments from. If you purchase savings bonds from TreasuryDirect, the interest is already tax deferred under most circumstances, so this is simply changing that to tax-free if you wait until retirement.
The reason I don’t think this is that great is because of the extremely low limit. It’s only around a $1000 a year upon retirement, so it’s not useful for retirement, which is sort of the point of retirement accounts.
And if you use it in the only way it is useful for, namely as an emergency account to stash some living expenses in the case of a medium term loss of income, then you get taxed (and possibly penalized) on the interest. On the plus side, like a Roth IRA you don’t get taxed on the principal since it’s already been taxed.
I think that it’s a good idea, for the most part. You can pull the principle out at any time tax free and only the interest is penalized. From what I read, the penalty is at going-rate (if your tax bracket is 25%, you get taxed for 25% on the interest pulled out.)
Also, the $1,000 limit I haven’t read about. Can you elaborate or provide a source better than I can find (random news sites, atm, are all I can find.)
The problems I have are:
The $15,000 limit or 30 years of being active. At that limit (or time), you are required to roll it to a RothIRA. This is ludicrously low. It should be at least $100,000 if not more.
It has a co-limit with a 401k account of a maximum contribution of $5,500 per year. So if you contribute $5,000 to a 401k, you can only contribute an additional $500 to this account. From what I’ve read, that’s total and not “tax free contribution limit.”
What I meant by that was if you were planning on using it to supplement your retirement income it would be only $1000 a year on average give or take a few hundred you could take out if you wanted the money to last for an average lifespan. Take out more than that a year and it would run out too quickly. ETA: even this is generous according to the “you can take out 4% a year” rule.
This works out to less than $100 a month which is an order of magnitude less than Social Security, so even as an income supplement to Social Security, $15K is barely anything.
Once you hit that 15,000, you have to roll it into a “real” IRA, though. So if you hit that at, say, 40 years of age you might have a better nest egg than just $15,000.
Think of these as “starter” retirement accounts. once you have “real” money you have to push it to another account type. (Real in quotes because I think $15,000 is a joke.)
Irrelevant. The savior could piss in a vat of Flavor Aid while jerking the venom of an Indian Red Scorpion into it and more than half of those on these boards would drink it and curse those that didn’t!
People over 40 with a nest egg over 15K probably ignore or do the opposite anything Obama has to say!
Are you sure about that? Did you listen to him on Tuesday? Did you? Did you? Did you really? He doesn’t give a flying fuck about Congress!
Thank you for your constructive comments. They have been duly noted and given all the consideration they deserve.
I agree with the OP’s main point - this seems too low to be useful for its intended purpose. I’m sure there are some benefits to be gleaned from the MyRA as proposed but I doubt they’re earthshaking enough to warrant Presidential-level advocacy.
If I were younger and just starting to save for retirement I might use it except for the fact that it’s based on a Sharia law. I am not sure how many people in this country will be comfortable using an Islamic system to save for retirement. Also the whole thing strikes me a a creeping socialism; I know Barry is trying to help people, but we have an American way of doing things that does not include redistribution of wealth. This is just one more in the long line of socialist programs instituted by this President (Obamacare, the Porkulus, TARP, SNAP, No Child Left Behind, Medicare Part D, etc…) and I for one will be glad when we take this country back.
Personally, I think he started small on the MyRA Program because anything larger might trigger yet another Right wing temper tantrum(although even this modest attempt to help others seems to set some of them off already).
I guess I don’t understand the reason for them. Anyone can open an Roth right now anyway. And investments in Treasury bonds is a joke, with a return of 1.5%.
What is the purpose of this again? If someone isn’t going to save, the “lure” of this plan is silly. If someone is saving, then they would go into a Roth and get better returns even with the worst mutual fund. If they’re concerned about low contributions being eaten away by fees, there’s tons of low costs funds out there, and since 1.5% isn’t that much more than a savings account…who cares? Who would this be attractive to that the Roth doesn’t already serve?
The minimal continuing investment level is very low.
There are no fees.
1.5% is significantly above savings account rates.
According to this (http://www.cnbc.com/id/100746205) the worst mutual fund had a -14.6 annual return over five years, and a 2.12% expense ratio. That is worse than 1.5% and no expenses.
It’s a very cheap way for lower income people to start some form of savings account.
Nyeh. I do better for clients everyday, frankly. And I have a $25/month minimum (I get waivers from mutual funds on minimum initial purchase just by asking.
It seems silly, but I suppose it’s a way to build a habit of savings. But requiring it to be in Government Bonds is ludicrous unless one of the goals is to increase the purchasers of such bonds.
Well, it’snot like I don’t know that more than 50% of the country will never significantly save. I suppose I can’t say it’s bad. It’s just not as good as it could be.
How is this any different than a IRA that invests in treasury bonds?
Initially, this thing is going to flop, because it’s stupid and few will want it. Instead of letting it die like it should they will simply make it compulsory. The government can force you to buy something dontcha know. Obama can use his pen and phone to make this happen like it or not.
There are billions of dollars out there sitting in retirement accounts that DC can’t get its filthy tentacles on. Now they have a way. But don’t worry, all of your money will be put safely away in a “lockbox” where it won’t be touched.
My retirement fund is mine! I earned it. Its for me - not some scheming, corrupt politician to take and replace it with an IOU so they can continue the party.
I think there are other advisers out there that are less frugal, and don’t do as much for people. So, good on you, I guess. Plus, finding people with small amounts of money and not much to save is probably not the way most financial advisers use their time, right? And, it’s available to anyone, anywhere in the US, so it may reach lower income people out in the sticks more effectively.
Anyway, it’s probably restricted to treasuries because this is all being done by executive order out of the Treasury Department. There is no need for new legislation to get this program going.
OT: What’s with the rants in this thread, anyway? This seems like a pretty sleepy subject to me.
For some, the default position is ObamaHate, and anything he is involved with is used to fuel it. If we took all their predictions at face value, than this country has been taken over by Communists a minimum of seven times, and Obama himself has caused Armageddon to happen at least five times. I personally believe some of them push this “You all worship him as The Savior!” crap because it makes it easier to shove that “Antichrist” label on him. The religious overtones of ObamaHate can be scary.
This is directly targeted at the 50% or so of workers that have less than $1000 in savings. Johnathan Chance aside, these folks often have a very hard time finding someone willing to take their money for any sort of return without paying fees and comissions.
The idea is to get low-income workers in to the habit of saving without exposing them to the sharks, and providing a government guarantee of at least the principal. Then, once they have saved up the $15k, they can roll over to the types of accounts that middle- and upper-income people have been taking advantage of all along.
I agree it’s weak tea, but I think it’s probably the limit of what Obama thought he could do without Congressional action.