MyRA Forced into Early Retirement

August 10, 2017 12:30 PM
By Brian Dobbis
296 Views

Economics trumped the original intent of helping low- to middle-income savers. So, now, a Roth IRA is the only rollover option.

THE ROAD TO RETIREMENT with BRIAN DOBBIS 

On July 28, the U.S. Treasury Department announced plans to end the Obama administration’s myRA program, less than two years after it started, in late 2015.  

The myRA program (short for “my Retirement Account”) offered government-sponsored retirement accounts through which entry-level investors could invest as little as $2. However, the program consisted of a single investment option: a safe, lower-yielding Treasury security earning the same variable interest rate paid by the Government Securities Investment Fund (“G fund”), which is part of the thrift savings plan for federal employees.

The accounts have the same contribution limits and withdrawal rules as a private-sector Roth IRA, except myRA accounts are limited to a maximum balance of $15,000. Once that limit was reached, a transfer to a private sector Roth IRA typically was required. Surprisingly, myRA did not support traditional IRA funding.

With a wide variety of more popular retirement-savings options, myRA had trouble justifying its existence from an economic standpoint. Investor appetite was minimal: myRA participants contributed a mere $34 million to their accounts. Currently, there are an estimated 20,000 myRA accounts, with a median balance of $500. But, amazingly enough, there are an additional 10,000 unfunded accounts.

The Treasury reported that the myRA program has cost $70 million to administer since its establishment, and would cost $10 million annually. In a press release, U.S. treasurer Jovita Carranza stated: “The myRA program was created to help low- to middle-income earners start saving for retirement. Unfortunately, there has been very little demand for the program, and the cost to taxpayers cannot be justified by the assets in the program. Fortunately, ample private sector solutions exist, which resulted in less appeal for myRA. We will be phasing out the myRA program over the coming months. We will be communicating frequently with participants to help facilitate a smooth transition to other investment opportunities.”

Participants will receive notification of the program’s phase-out, and will be able to move their assets into a Roth IRA, the only permitted rollover option available. Note: Roth IRA assets cannot be rolled into a Roth 401(k) or 403(b).

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