This, most of all.
After reading a bunch of comments here and elsewhere, I’ve been inspired to remind my countrymen that $15K is significant amount of money for some people, and that we with 401Ks and brokerage accounts can surely appreciate the security of T-bills vs. other vehicles. I cannot for the life of me see the downside to encouraging people to invest in them, or spot the stupidity in this plan.
Well, the compliments are very kind.
Get me, I don’t spend all of my time with beginning investors. But I’ve taken the position that having 20% of so of my clientele be that level is worthwhile because they won’t always be at that point. It’s a long-term decision on my part.
That said, I try, in these low interest days, to get my most conservative investors at least twice inflation. It’s just good sense. My main objection to the MyRA program is the government bond limits.
Not that I have a better answer, really. Given the political realities it might be the best possible right now.
That’s true sadly, although it would at least shift the Overton Window and considering it’d be popular among all political groups, increase Obama’s support.
It is kinda hard to entice someone with “Put your money here, and it will double in 47 years!”.
It’s harder to entice someone to invest anything in retirement when they have to pay a straight fee just to get in the door. Especially when those fees will outweigh the principle paid into the account in the first place.
These are good starter accounts, nothing more.
There is no fee to open a “starter” IRA account at any discount electronic brokerage. And only minimal commissions when you buy something in that account.
Hell, there’s no minimum fee in my full service non-discount brokerage. I can get beginning investors into bond funds for - sometimes - as little as 2%. So for a $25 initial buy the fee would be 50 cents.
It depends on the brokerage. The places that don’t charge a fee to open the account still tend to charge a fee to keep the account open.
You also have the withdrawal penalty of 10%. If it was deposited pre-tax, you have to pay the 10% plus your income tax rate. These myRAs say that you don’t have a penalty on withdrawals of the principle (only), so you get to keep 10% more of your money if you are in hard times and need a boost to keep from sinking.
It also means that you can put money in there for a few years and once you see the principle + interest getting to $12,000, you can withdraw some of the principle to keep it from hitting the $15,000 limit without penalty and either push it to another savings method, or put it into a real retirement account.
I still have my issues with that, that I stated before, but it’s not like this is a terrible thing. It just doesn’t offer as much help as we probably should.
No snark meant: how many people do you get coming in with a $25 dollar bond purchase or something along those price points?
Jonathan: if you have “clients” and “investors” you are not talking about the people a MyRA is intended to help.
In 2013 a few hundred. It can’t be a large part of my business but I do spend some time chasing it with a view towards the long-term benefit to my book. They tend to be either blue collar in their 30s or just post-students in the early 20s.
And for svd678, I’d argue that anyone who does business with me is both client and investor. It’s the nature of the industry. Trying to separate different groups - as if ‘investor’ just means the wealthy - is to create an artificial dichotomy that makes assumptions about people and their rate of savings.
Are there restrictions on when and how much an investor can withdraw from a MyRA? Because with the low required initial investment amount and lack of fees, I can see this as being a good substitute for a traditional savings account for folks who have limited access to the banking system. But as a retirement vehicle, it’s a joke. (And less face it, folks who have less than $1000 in savings don’t need to be saving for retirement - they need to be saving for emergencies! For them to tie up what little available cash they have in retirement vehicles which will penalize them severely if they withdraw the money before reaching retirement age is a huge mistake.)
It seems like a fine idea in concept, but of limited use, and I think adding yet another retirement account program with slightly different rules is just going to be confusing. I think a lot of government actions are this way. Each one taken individually is probably a good idea, but all of them together are just a morass of complication.
If we want to help the people that this is aimed at, a much better plan would be to make IRAs a bit simpler for people who put away enough money to matter, and increase the social security tax income cutoff a bit for people who don’t put away enough to matter.
Of course, doing that would be difficult and contentious. So instead we get a feel-good but mostly meaningless kludge added on to the other retirement programs we have.
Seems to me that this will affect people in one of two ways:
- You are smart enough to figure it out and won’t use it anyways.
- You aren’t smart enough to figure it out and don’t know how to use it.
Sorry. I never noticed your reply. The perils of using multiple devices to read the SMDB. 
So, if the MyRA is generally useless (or at least - superseded by already-better options) - what good can actually come from them? Is it supposed to be a $15,000 per-person loan to the federal government or something?
A lesser man, perhaps a more cynical man than I, might just believe that. It’s a means for increasing the individual purchases of federal debt. Still seems silly, though, as I can’t imagine it would move the needle much.
In all honesty, I suspect it’s a PR move designed to show that the President is DOING something about low savings rates for those without 401k or other employer-sponsored savings plans. But again, if it encourages the habit of saving I can’t say it’s completely bad. I did a speaking engagement yesterday before a group of about 250 African American men (a men’s group sponsored the event). After I defined savings and retirement planning and asked who had savings in excess of $10,000 fewer than 5 raised their hands.
I like them to be honest, assuming they are easy to open and get going through a very simple web interface. A lot of people who are not savers and have nothing in the market are freaking scared to death of anything involving the stock market, brokerages etc, and in addition to that fear they also have no knowledge of these things. You talk to them about it and their eyes glass over.
I’ve been in the market since I was 16 (with stocks my grandfather purchased for me with money I gave him from high school / odd jobs) and have never had a single year since 1979 where I’ve not put at least 15% of my yearly income into the market. I’m not a professional like Jonathan Chance but I’ve helped enough family and friends (as I’m often the “guy who knows about the market” in those groups, and most importantly since I’m not a professional I don’t charge money or incur any risk from throwing out advice) that I know what non-savers are like, or even just plain bad savers.
I had an aunt whose employer let her purchase savings bonds (initially paper, later electronic) through payroll deduction. This was the entirety of her savings, and it was substantial. Luckily she has a traditional pension and is happily retired and living off of it, but back when I looked into her situation for her I was just shocked. She had a home “safety box” filled with paper savings bonds, thousands and thousands of dollars in them, then she had thousand and thousands more electronically. I helped her get an IRA setup and then after maxing out the contributions she could make I had her buy mutual funds through Vanguard with the rest.
I think it’s worked out decently for her, but there was only so much that could be done. It’s almost a tragedy thinking of the large amount she had saved in savings bonds over 25 years and how she’d basically probably be outright rich if she had put the same amount of money in an S&P 500 Index Fund over that time.
But she thought what she was doing was best, the market scared her, brokerages scared her, financial people scared her. She trust the government and she trusted those savings bonds.
A very low risk, easy way to get into savings that has to convert to an IRA seems like a great way to kill two birds with one stone. One are the non-savers, with easy setup and any level of savings you want, it’s the most convenient option this side of a savings account. Two are the “bad savers” like my aunt who did something they shouldn’t have for years, if she had been investing in savings bonds through a myRA she would have been forced to convert it to an IRA decades ago for the better.
This isn’t a fair or accurate description of the likely fees someone would face for setting up an IRA/Roth IRA with a major entity. Fidelity and Vanguard are the two giants in this space. Both of those you can get started for $1,000 and then contribute any amount you wish per month, there is no minimum after you open the account. There aren’t any account maintenance fees with their standard IRA/Roth IRA accounts. Both offer extremely low cost index funds. I’m not sure what you’re talking about with the withdrawal penalty.
Standard IRA: 10% withdrawal penalty and the withdrawal is taxed as income.
Roth IRA: 10% withdrawal penalty on earnings, none on principle. The principle withdrawal is not taxed at all as it is money you’ve already paid tax on, essentially your Roth IRA principle balance is akin to savings account money in terms of its tax treatment.
myRA: No penalty on any withdrawals.
So the only difference between it and a Roth (at least from what I can tell browsing the myRA website), is that a Roth you pay a 10% penalty on earnings withdrawals made prior to age 59.5. I’m not sure, but it sounds like in your post you believe you pay a 10% withdrawal penalty on Roth principle, which you do not.
Yeah, Martin. Anyone in the business has tales like that. I’m working to convince one older gentlemen that he’s been a bit…overly cautious.
His situation:
- Late 60s
- More than $750,000 in savings
- Currently in CDs
Argh. He’s not getting a bad return on the CDs because some of them are whopping big. Still, when I first met him he told me he’d been scared out of the market and liked just holding CDs because the principle wasn’t at risk. Fine, I hear his caution, 2008 scared the living hell out of everyone.
Later conversations revealed that it wasn’t 2008 that scared him but the 2001 dot com crash. So he’s been getting a less-than-inflation return for more than 10 years now. He’s so fear-obsessed that he doesn’t care how much buying power he loses. Ay di me.
Still, like our old comic books and baseball cards, we all have similar stories. The important thing is to move past them and help the people we can. As I said, the MyRA thing is probably a good idea as the beginning of a rational savings plan, but it can’t be the whole of it.
So, the fees are coming from an impossible minimum balance for those less well to do. I was speaking in the “I am a dirt farmer” level of investment, which is what the MyRAs seem to be targeting. If you can scrap together the $1,000 to start a retirement account, odds are you are either solidly middle class or higher or good at saving.
I was mistaken about the Roth (I had a standard IRA before moving over to 401ks a while ago) penalty.
Is this true? Everything I have read about the MyRA has said it was on Principle only withdrawals, and I assumed that earned interest was penalized - since, why would you specifically mention the principle if interest could also be pulled without penalty?