The White House released details Wednesday of myRA, a retirement savings vehicle for workers who currently do not have one available at their jobs. President Obama announced the creation of myRA by executive order in his State of the Union address Tuesday night.
The plan immediately drew praise from advisor and retirement industry trade groups.
MyRA will be offered via Roth IRA account in government bonds. The interest rate would be the same as federal employees’ receive in the variable rate Thrift Savings Plan (TSP) Government Securities Investment Fund.
The minimum initial investment is $25. Payroll deductions as low as $5 would help build up the savings. Savers have the option of keeping the same account when they change jobs and can roll the balance into a private-sector retirement account at any time.
Participants in myRAs could save up to $15,000 for a maximum of 30 years.
Contributions can be withdrawn tax-free at any time.
Households earning up to $191,000 per year would be eligible.
In Tuesday’s announcement, the administration said myRA will begin as a pilot project at employers who chose to participate by the end of this year.
“The accounts are little to no cost and easy for employers to use, since employers will neither administer the accounts nor contribute to them,” the White House said.
American Benefits Council Senior Vice President Retirement Policy and International Benefits Lynn Dudley called myRA pragmatic and limited---aimed at workers often not on a job long enough to be eligible for traditional work place retirement programs and for workers who job hunt frequently.
“It’s unlikely to cause any change in employer plans,” the trade group executive said.
In response to the President’s announcement, Investment Adviser Association Executive Director David Tittsworth said, “All of us support initiatives to encourage savings and investments for working class Americans. It will be interesting to examine the details of his proposal to understand whether it will achieve this worthy objective.”
The mutual fund industry’s main trade group, the Investment Company Institute lauded MyRA as a voluntary savings tool of this type can complement the existing vibrant and competitive private sector retirement offerings, which include low-cost mutual funds.
The Securities Industry and Financial Markets Association (Sifma) said it supports myRA.
However, financial advisor Ric Edelman said he doubts the program will prove fruitful.
"People of lower incomes won't likely give $25 or more to it because they can't afford it, and the return is so low there's no opportunity for compound growth," Edelman said.