Three decades of disappearing pensions, stagnant middle-class incomes, restrained ability to initiate and maintain personal savings and the flop 401(k) experiment lay the bedrock for a retirement crisis that threatened millions of American seniors and their families. The American seniors have been repeatedly told to bear the expense of the fiscal failures that have already left them facing a questionable and depleted retirement. The latest Congressional budget deal in Washington aims the senior retirees with $12 billion in pension changes, including trimming down pensions for military people who give up their jobs in 2015 and requiring the new government workers to donate more to their retirement accounts. As per the New School for Social Research, 75% of Americans who are on the verge of retirement have less than $30,000 in their retirement accounts. The NIRS or the National Institute for Retirement Security reports that 4 out of 5 working households have retirement funds less than one times their annual income and 45% of the senior population don’t have any retirement assets at all.
Obama as the Good Samaritan – Introduction of MyRA as a new savings plan
President Barack Obama signed a presidential notation empowering the Treasury Department to fabricate a new retirement-savings plan, aimed at all those workers who don’t have access to 401(k)s, the most common among the traditional retirement programs. Shockingly, about half of the US workforce represents this group. Named “MyRAs”, the personal retirement accounts were one among the many proposals that Mr. Obama divulged during his State of the Union address. While he traveled to a steel plant in Pennsylvania, Obama informed the steelworkers that this was going to be a “pretty good deal” that would encourage and boost more and more people to save for their retirement.
Obama stirs the workers to build their nest egg – How will MyRA work?
Obama, in his State of the Union address said that this is a new savings bond that reassures and props up the folks to continue with their efforts of building their nest egg. MyRA promises a decent return with no risk of losing the money that you’ve put into it. Have a look at how MyRA works.
Discretional donations into the account: The donations into the account will be made through payroll deduction. When you start off, the investment amount needs to be $25 in the least but the ongoing contributions can be as small as $5. The workers can save up to a maximum of 30 years or $15,000 in MyRA before they will require transferring their entire balance to a Roth IRA. The employers won’t contribute to these accounts.
Tax treatment on Roth accounts: The MyRA is a Roth account and hence the workers contribute their post-tax dollars. Withdrawals, including the earnings, during retirement will hence be tax-free. Initial distributions of the MyRA contributions, excluding the earnings, can be withdrawn any time. According to the senior officials of Obama administration, the primary purpose of MyRA is to enhance retirement saving but if the workers go through dire financial straits, they may raid this account. As long as it’s the principal amount that is being withdrawn, there’s no penalty attached.
Flexibility of the account: The participants are allowed to retain the same account when they switch jobs and change employers. They’re even allowed to contribute their after-tax dollars derived from multiple jobs. Rolling the balance into a private sector Roth account is also allowed any time.
Security of the principal: Unlike Roth IRAs, the participants of MyRA will be safeguarded from market losses and they’ll also be guaranteed that the value of the account won’t ever depreciate. The principal investment in MyRA will be backed by the federal government.
Income limitations: The MyRA will be accessible to households that earn up to $191,000 per annum. According to the Treasury Secretary, MyRA will only be targeted to the Americans who are deprived from saving money in their workplace retirement accounts. As per a statement to the White House, the major problem in the US retirement industry has been the lack of private sector providers of retirement savings option that caters to the poor-income savers. So, this account is for those workers who are in dire need of a place to invest their hard-earned dollars, that offers a suitable balance between risk and yields.
Volatile returns: The workers who save in MyRA will draw an interest rate that is similar to the interest rate earned by the federal employees who save their dollars in the Thrift Savings Plan’s Government Securities Investment Fund.
President Barack Obama’s plan for this retirement account is undoubtedly a commendable step but at the same time, it’s debatable how tempting and lucrative the ideas may be to the mass of lower-income workers who are trying their hardest to make ends meet. Although the MyRA accounts provide a solid entry-level plan for the people to get started, yet unfortunately he has made an independent proposal that could scrunch retirement savings for all those who are way up in the income ladder. The White House officials have said that the tax breaks on all retirement savings accounts have been overtly generous for the wealthy class of people. So, Obama is calling on Congress to tune down tax breaks for the wealthy families when they sock away dollars in a tax-advantaged retirement fund.
