The Obama administration has announced the creation of a new retirement savings account designed to target Americans not covered by a workplace retirement plan. The new accounts will be offered through employers and are expected to become available in late 2014.
President Obama announced the new myRA (“my Retirement Account”) program during his recent State of the Union address in which he called for a year of action to address issues of income inequality, vowing to make progress through executive action if Congress fails to act. Unlike his previous retirement savings proposals, Obama said the myRA program would not require Congressional action and thus, he gave the Treasury Department an executive order to finalize the development of the program by year-end.
MyRAs will be Roth-type savings accounts available to individuals who have annual income of less than $129,000 and married couples with less than $191,000. MyRA is designed for those who do not have access to employer-sponsored retirement plans, but may also be used by individuals who wish to supplement their current plan.
Participation in myRAs will be completely voluntary, both on the part of employers and employees. Once the accounts become available, employees of participating employers will sign up for a myRA online. The program will require a minimum $25 opening deposit that will be funded through automatic payroll direct deposit. Employees may elect to have a portion of their paycheck—as little as $5 per pay period—directly deposited into their myRA. There are no fees for the account and contributions can be withdrawn tax-free at any time.
The accounts will earn interest at the same variable rate as the Government Securities Investment Fund for the federal Thrift Savings Plan, and will be backed by the full faith and credit of the U.S. Treasury Department. Participants can at any time voluntarily roll over myRA assets to private-sector retirement accounts, like Roth IRAs. After 30 years or once the balance in a MyRA reaches $15,000, whichever comes first, the balance will be rolled over to a private-sector account.
Individuals who have multiple jobs may contribute to a myRA through more than one employer, and if changing jobs, they can continue adding to the same myRA by setting up deposits with a new employer.
Employer contributions to myRAs are not permitted. An employer’s only role other than distributing myRA information to employees is to facilitate the direct deposits and to send them to the employees’ myRAs.
The Obama administration expects that myRAs will be widely available in 2015, but they will initially be offered through a pilot program by the end of 2014.
As with any new program, much work remains to be done. The Treasury Department has announced that the myRA program will be run by a private-sector money management firm chosen through a competitive bidding process that is expected to begin shortly. However, other than announcing that they will finalize rollover procedures when the myRA program is launched later this year, the Treasury has provided no other details about the program, such as how employers can choose to participate in the program.
The move to create this program reflects the Obama administration’s belief that retirement savings tax incentives are skewed to benefit the wealthy and should be more focused on lower- and middle-class taxpayers. Obama also used his State of the Union address to again call on Congress to pass his automatic IRA proposal, and in a follow-up press release highlighted the fact that half of all American workers do not have access to employer-sponsored retirement plans. Obama reiterated the administration’s earlier calls to restrict tax benefits for retirement savings of certain higher-income households. Obama indicated he will include many of these same proposals in his fiscal year 2015 revenue proposal.