What is the myRA Retirement Savings Account?

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What was the myRA retirement account? How could low-income workers start retirement savings safely and easily?

On January 28, 2014, US President Barack Obama announced myRA, a US Treasury retirement account intended for workers without employer-sponsored retirement plans. myRA rolled out to US workers in 2014. If you didn't have a pension or 401(k) plan through your company, you may have been eligible to enroll in myRA.

On July 28, 2017, the US Treasury announced the end of the myRA program, citing cost-cutting measures. While the uptake was never great, the Trump administration's other actions in repealing the fiduciary rule and other regulations demonstrate a disregard for low income workers. Ending myRA is another example.

What was the myRA Retirement Account?

The myRA was a new variant of the Roth IRA—an individual retirement account. It had several interesting features.

You could start a myRA plan with as little as $25. You could contribute a tiny amount of money from every paycheck—as little as $2 (and, at most, $5500 per year). As with a Roth IRA, these contributions were deducted from your paycheck after you pay taxes, so you wouldn't owe any taxes on qualified withdrawals. In other words, everything you earned in this account would be tax-free.

You were eligible to contribute to myRA if you met the Roth IRA contribution guidelines: if you file as an individual and report less than $129,000 of annual income or if you file as a household and report less than $191,000 of annual income.

Unlike a Roth IRA, myRA contributions were insured and guaranteed by the US Government, so you'd never lose them. They were like savings bonds in this respect. There were also no fees for participating. Furthermore, myRA must have been offered by an employer, but was not tied to an employer, so you could transfer it between employers when you change jobs—without penalty.

A myRA account earned the same interest rate as investors in the Thrift Savings Plan or the Government Securities Investment Fund. (1.47% in 2012, but 3.39% average annual return from December 2003 until December 2013.) By design, when a participant accrued $15,000 in the account or had the account for 30 years, it rolls over into a private account. There was no penalty for withdrawing the principal—your contributions—at any time. After age 59 1/2, there was no penalty for withdrawing your contributions and your earnings. You won't pay taxes on it either.

Why Did the Obama Administration Create myRA?

The intent of the myRA program was to remove as many barriers between workers and saving for retirement as possible. While employers had to sign up to offer myRA to their employees, the lack of fees and guaranteed return and insured principal and low entry and contribution costs made this plan very affordable for most workers.

If you saved $275 ($25 to start the account and $5 a week) the first year, get an average return of 3%, and kept that money in there for 35 years, you'd have ended up with $750. That's not a lot of money, but if you've never saved anything for retirement, it's a start. Ideally you would have contributed more (and your employer would have offered more retirement funds).

If you saved $275 ($25 to start the account and $5 a week) the first year, add $250 every year for 35 years, and saw an average return of 3%, you'd have ended up with $15,000—which isn't bad at all. Keep in mind that would all be tax free. (After 30 years you'd have had to roll it over into a private account, but by that point the goal is for you to know more about how to manage your own investment. You may pay a little more in fees, but you'll be able to invest in many other options.)

Who was myRA Good For?

myRA was very good for young workers. It was a cheap and easy way to get them in the habit of setting aside a little from every paycheck toward their retirements. A 20 year old could get a head start on a nice little nest egg even if he or she doesn't have a real career yet.

myRA was good for low income workers who can contribute even $5, post-tax, from every paycheck. (An increase in the minimum wage will only help that.) A return of 3% annually won't make anyone rich, but having some money set aside and growing (tax-free) is better than having none.

myRA was no replacement for a self-directed Roth IRA. You could get much better returns than the Thrift Savings Plan rates, if you're willing to take on more risk. You could get similar tax-free benefits with a standard Roth IRA or invest in municipal bonds for nearly the same safety.

myRA wasn't good for Wall Street brokers who charge big fees, because there were no fees. There was little work to set up this program and keep it going, and there was little churn to charge participants money. (Some people argue that Wall Street isn't interested in $250 a year from several million people, but Wall Street is always interested in money).

This program had an idealism which believed it's in the long-term interest of the US to encourage people to save more for their futures. Social Security payroll withholding does support a safety net for seniors, but it's unlikely that Social Security will provide today's workers with the standard of living they'd like when they begin to retire.

It wasn't not a big program. It wasn't not a complex program. It was a little program with few downsides and a few advantages targeted at people who need them. (Arguably, myRA wasn't very popular, but it also wasn't marketed well.)

You may not be ready to manage your own stocks (or even buy and hold a simple but valuable index fund) yet or ever, but if you can commit to saving even $5 a paycheck in some form or another, you'll have taken an important step on your path to financial knowledge and independence—and you deserve full credit for doing so.

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