On Wednesday, January 29, 2014, President Obama gave his State of the Union address. During the course of his address, he ordered that a new type of employer sponsored saving account be created for the purpose of helping people save for retirement. The President suggested creating this new class of retirement saving account would help middle class Americans bridge the growing income equality gap.
Starter Retirement Savings Program
The new saving program created by President Obama is called the “MyRA”. The name mimics the Individual Retirement Account (IRAs) that first came into existence to help Americans save for retirement in the 1970s. These new accounts operate similar to the Roth Individual Retirement Accounts (Roth IRAs). Married couples with adjusted gross incomes of up to $191,000 and individuals with incomes up to $129,000 will be able to put away $15,000 in after tax dollars for a maximum of 30 years.
Currently the Roth IRAs will allow working individuals to save up to $5,500 per year, or if they are over 50 in 2014 $6,500 per year. Contributions can be withdrawn tax free.
The MyRA funds are subject to being withdrawn at any time without paying an income tax penalty. However, if the money is removed from the MyRA said funds will be subject to the same restrictions that currently exist for Roth IRAs.
Investment Options for the MyRA
There will only be one investment option for the MyRA. The United States Treasury is going to create a security fund modeled after the Federal Employees Thrift Savings Plan Government Securities Fund. This fund will have a variable rate of interest return on the funds deposited in it. This will prevent any individuals making deposits in the MyRA avoid losing any money maintained in this retirement plan.
The purpose of the MyRA is to allow lower income Americans to accumulate up to $15,000 towards retirement. Although this is not a significant amount of retirement assets, it is a start in the right direction.
Elliot S. Schlissel is a member of the National Academy of Elder Law Attorneys. He drafts wills and trusts and handles estate and probate matters for clients.