Prepare Now for When the New MyRA Becomes "TheirRA"

Money Morning ^ | 10 February 2014 | Peter Krauth

[Vigilanteman]

In his recent State of the Union Address, President Obama unveiled something new: a retirement savings account to "help" Americans build a nest egg, coining it the "MyRA."

Something immediately felt wrong about the proposal... but I couldn't put my finger on it.

So I researched the new MyRA and found details to help you understand just how it works.

But I also saw some potential dangers there that you need to prepare for now...

What MyRA Really Means

Like most government programs, getting to their essence can take some sifting. So I've distilled here what I think are the principal components of MyRA.

1. Individuals earning up to $129,000 and couples earning up to $191,000 are eligible if their employers offer the account;
   
2. The minimum initial contribution is $25, then at least $5 through payroll deductions;
   
3. The maximum contribution is $5,500 per year ($6,500 if over 50 years of age);
   
4. Once the balance reaches $15,000 or has existed 30 years, it must be rolled into a Roth IRA;
   
5. Total contributions to a person's IRAs cannot exceed $5,500 annually;
   
6. Like a Roth IRA, withdrawals will grow and be redeemable tax-free;
   
7. Principal can be redeemed any time, but earnings withdrawn before age 59 ½ are taxable and subject to 10% penalty; and
   
8. Only one investment available: Treasury bonds paying variable interest-rate return . . .

[Vigilanteman]

What a surprise! Some more hog slop to fool the low information voter . . .

Why do you suppose they do that?

[Eric in the Ozarks]

This is the first step toward nationalizing all retirement plans and our retirement savings.

[Mr. K]

I would bet my life on it that the only difference between your regular IRA and the new “MyRA” is that the government holds the money

Which means that, just like social security, they get to spend it now and pay you back from future deposits

[dfwgator]

Which means that, just like social security, they get to spend it now and pay you back from future deposits

"That's as good as money sir, those are IOUs."

[Blood of Tyrants]

Exactly. How is this different from SS?

[Mr. K]

so am I mistaken or is a ROTH IRA letting people put pre-tax dollars into a retirement account and then withdraw them tax free??

That does not seem like a US Government Plan at all....

What have I gotten wrong? If I knew I could put money tax-free into an account i would have been doing it all along, but my distrust of ANYTHING government prevented me from even looking at it.

If it IS true then I expect it is a bait-and-switch to sucker people into putting their life savings into an account that they will confiscate and spend (and leave you a ‘voucher’)

You KNOW they want to do that... They keep bring it up over and over again, so the fact they are even thinking about it concerns me. It is only a matter of time before they come up with a way they think they can sell to the sheeple

[digger48]

"Annnnnd....it's gone."

[Vigilanteman]

1. Employers don't match your contribution (though, I am sure, they will be strongly encouraged to do so.
   
2. It isn't clear, but it is suggested that your contribution isn't double taxed like social security; only when you withdraw it. I am guessing the suggestion is a lie since you must eventually roll it over into a Roth IRA (money you've already paid tax on) versus a traditional IRA (money you may deduct from your taxable income). But I'm guessing they figure that your target low information voter will not figure out this distinction.

[BuffaloJack]

And the next step will be requiring all IRAs to have the capital 100% in government junk bonds.

[FlingWingFlyer]

This Chicago mob is the worst bunch of thieves ever to hit the District of Corruption. They make all the rest look like a bunch of choirboys.

[reagandemocrat]

When he called it “MyRA” he means “HisRA”.

[Aevery_Freeman]

... tax free...

I do not think this phrase means what you think...

When you see the term "tax free" think "tax liable". You will be paying the tax at the future, higher rate.

There are two things that the government has promised me all my life: 1) tax cuts and 2) Middle East peace.

How are they doing?

[Leaning Right]

Isn't the MyRA just like a Roth IRA? Same contribution levels, same tax treatment?

I can see only two differences. I recall reading somewhere that there are no management fees associated with the MyRA. How can that be? Someone somewhere must be paid to keep the records, buy the shares, etc.

And the other difference is that the MyRA only has one investment option, T-bonds. That might be okay for a risk-adverse person in retirement. But it's foolish for anyone else.

Am I seeing this right?

[Vigilanteman]

My take as well. But there are a number of institutions which will open Roth IRAs for you and not take fees. You have to shop around. The one I am with let me open one for $100 and has never deducted a fee. I can leave the money there earning 0.75% or open a share builder account which allows me to invest in anything sold on the market.

Anyone interested in the name of the company can FreepMail me. Send me your name and e-mail and I'll even send you a referral link which will earn you a little extra, but that's optional, not required.

[Rusty0604]

Sen. Tom Harkin’s retirement plan proposal – released Jan. 30 — has some flaws, not the least of which is that employers who offer 401(k) plans would have to change their current plans to be more like defined benefit plans if they didn’t want to be forced to adopt Harkin’s USA Retirement Fund, according to the National Association of Plan Advisors.

http://www.benefitspro.com/2014/02/03/harkin-retirement-plan-would-force-some-employers

[Fireone]

A Roth IRA is funded with after tax dollars, not pretax.

[Mr. K]

that explains it

so back to my original plan- that I would never put money into a government IRA (Roth or Otherwise) why tell them how much money I have and give them ANY control or regulation over it?

The only benefit I see is tax-free withdrawal if you make a great investment with your Roth IRA.

[X-spurt]

Nobama doesn’t really figure any of his “low info” supporters will actually save a dime, its 100% BS to make em think its special and just for them.

[Bubba_Leroy]

A Roth IRA is funded with after tax dollars, not pretax.

Correct.

1. A regular IRA is funded with before tax dollars (you get to deduct the contribution amount from your gross income). You invest it however you want. When you withdraw it, you are taxed on whatever you withdraw (principal or interest) at your then ordinary income tax rate.

2. A Roth IRA is funded with after tax dollars (the amount of the contribution is included in your taxable income with no deduction). You invest it however you want. When you withdraw it, you pay no income taxes on whatever you withdraw.

3. Obama's MyRA is basically a Roth, but you can only invest your money in the Government Securities Investment Fund, which has an average rate of return of less than the inflation rate (e.g., in 2012 the G Fund had a return of 1.47% vs. an inflation rate of 2.08%). Basically, you get a slightly better return than stuffing dollars in your mattress, but not much.

Since the Roth IRAs were first established, I have always assumed that they would become too big of a piggy bank for the government to leave untouched. I have pretty much stuck to regular IRAs on the assumption that getting tax deductions for the contributions in the years that they were made were worth more that the promise (likely to be broken) of no taxes at retirement.

IMHO, Obama's "MyRA" is simply the first step towards government confiscation of private retirement funds, just like Obamacare was simply the first step towards fully socialized medicine.

[Leaning Right]

The only benefit I see is tax-free withdrawal if you make a great investment with your Roth IRA.

True enough. But consider this. Suppose you decide to save $100 a month towards your retirement, for twenty years. You decide not to risk anything in stocks. And so you pick a savings account paying 4%.

There is no "safe" savings account now paying 4%, but I'm using 4% because it's close to the historical averages.

If you use the bank down the street, you'll have instant access to your money (assuming the fed's don't declare a "bank holiday"). And you'll pay taxes every year on your 4% interest. So that leaves you with perhaps a net 3% interest.

After 20 years, you'll have roughly $33,000.

But if you put that money in a Roth IRA savings account, you'll get the 4% interest tax-free. After 20 years you'll have roughly $37,000.

But the Roth money will be tied up more than the bank money would be. So there's your choice.