President Barack Obama's announcement Tuesday evening that he plans to use an executive order to set up MyRA retirement accounts for moderate-income workers is receiving praise from the retirement planning world. But it hasn't stemmed criticism of his earlier proposals to change the tax treatment of retirement savings for those with large accounts.
Obama said that on Wednesday, he would direct the Treasury Department to set up a new savings bond, called MyRA, to allow working Americans to kickstart their own retirement savings. "It's a new savings bond that encourages folks to build a nest egg," Obama said during his State of the Union speech. "MyRA guarantees a decent return with no risk of losing what you put in."
Sen. Tom Harkin, D-Iowa, chairman of the Senate Health, Education, Labor and Pensions (HELP) Committee, said that while he commends Obama "for recognizing that we are facing a retirement crisis" and that the president "is doing everything he can to make the system work better for middle-class families," he has "limited tools."
Harkin plans to introduce on Thursday his "comprehensive legislation" that he says "tackles the retirement crisis head-on by ensuring that every working person has the opportunity to earn a safe, portable and secure pension."
Harkin will unveil Thursday at the National Press Club in Washington his Universal, Secure, and Adaptable (USA) Retirement Funds Act of 2014, which would create a new type of privately run retirement plan intended to combine the advantages of traditional pensions — including lifetime income benefits and pooled, professional management — with the portability and ease for employers of a 401(k).
Workers earning less than $191,000 per year would be allowed to invest in Obama's MyRA, and there would be no tax penalty for withdrawals. Initial investments could be as low as $25, while subsequent investments could be only $5 and automatically deducted from workers' paychecks.
Harold Evensky, president and CEO of Evensky & Katz, says that while MyRA "may open up savings opportunities for those with incomes at the low end of the 'middle class,'" such an account will be "of little interest/help for many middle-class investors." Families at the upper end of the middle class, those with incomes of $50,000 to $100,000 "are likely to be in a position where parsing savings down to $5 a pop is not necessary."
Bottom line, says Evensky: "If [MyRA] encourages even a few extra people to save, I think it's a valuable concept but not one to justify changing the tax advantages of a traditional 401(k)."
Once a worker accumulates $15,000 in their MyRA account, or they have the same account for 30 years, they would have to roll it over to an individual retirement account.
The accounts would have the same variable interest rate return as the Thrift Savings Plan Government Securities Investment Fund accounts that federal employees enroll in.
