After the President’s state of the union announcement of the new myRA account, my first reaction was: Did we need this? What’s so “out of reach” about a regular Roth IRA? And if there was a great hue and cry for this, why hasn’t the marketplace provided it already?
After all, there are custodians who will provide a no-fee Roth IRA with no account minimum already (TD Ameritrade comes to mind). Plus, there are plenty of ways to get a bond-like return with no costs or account minimums as well.
All that I can find that is different about the myRA accounts is that the bond investment (same as the TSP “G” fund) has downside protection – meaning that the funds in the myRA account will never reduce in value, only grow or stay the same.
As with any gift (and downside protection is indeed a valuable gift), there is a cost associated with it. Think about it: bonds fluctuate in value day in and day out, year in and year out. If the value of the bonds decreases, somehow the investor’s dollar has to remain constant. The only way to do that is to have other funds available to hedge the value fluctuations, and someone has to provide those funds. Since these myRA accounts have no fees associated with them, the investor isn’t paying for the hedge. I KNOW! How about all taxpayers foot the bill?!
One other difference with the myRA is that the intent is to have this available via widespread employers – at no cost to the employer – via payroll deduction. First of all, there is cost associated with making changes to payroll. Adding in a new deposit destination doesn’t just happen automatically, someone has to take action to set it up – and that costs money.
Other than those two facts, all of the remaining features that I’ve been able to read about are exactly the same as a Roth IRA – contributions are not tax deductible, withdrawals at retirement age are tax free, withdrawal of contributions can be done without tax or penalty at any time, and the account can be rolled over into a Roth IRA at any time (myRAs must be rolled over when the balance grows to $15,000, or a maximum of 30 years from initial investment).
From my perspective the myRA is only going to complicate matters more than they already are. Folks who had the desire to save money in a Roth IRA were already figuring out how to do it on their own. Having this additional option is (I believe) destined to the same result as the Coverdell ESA – great idea, but there are too many alternatives already in place with 99 44/100ths percent of the same features.
Far be it for me to disparage attempts to help people save more. I spend a lot of time encouraging folks to do just that, all the time. I suspect that the myRA will likely do not much more than just confuse folks who know someone named Myra (I knew a Myra when I was a kid, she was our pastor’s wife and she taught my sister to play the piano). She was a very nice lady and an excellent piano teacher, but if she did anything to promote retirement savings, it was lost on me.