Switched Keys

I didn't hear Obama's SOTU speech, but reading about it, his MyRA proposal was quite interesting. Over the past 24 hours it has been the buzz among financial planners. In short, through the new MyRA, if your employer participates, you can contribute to this government guaranteed plan (savings bond) with very small dollar amounts and be able to withdraw at any time.

My question is, what is so significant about that? It may encourage saving, but it is quite a trivial effort. Many employees, if their employer agrees, can already contribute to savings accounts through payroll deductions, and most anyone can open a savings account individually.

Since it requires employer participation, and contributions are guaranteed whether contributed to the government or to a savings account at a financial institution (FDIC), the plan is more of a marketing tool than an effective means of enabling low-income earners to save for retirement.

It seems trivial also because it is essentially a government-backed Roth IRA. Contributions are after-tax and gains are tax-exempt. It seems it would be just effective if a few modifications were made to the Roth. In fact, the MyRA may not be considered a qualified retirement plan eligible for the Saver's Credit.

Although the availability of the MyRA has been compared to the 401(k) offerings of employers to certain individuals, there really isn't a comparison since this is more of a savings account than an investment account.

My first impression (subject to change) is that this plan won't encourage most people to think more seriously about their retirement plans.

It reminds me of the commonly used annual government plan that's been used for many years to save money, the Income Tax Return. After a year of excess withdrawals (and tax credits) people use that savings (tax refund) to buy something they want instead of plan for their future.

I suspect that those people that don't have the discipline to save for the future are not likely to have the discipline to not withdraw those MyRA savings to take advantage of big sale prices on the latest electronic gadget.