Move Over, IRA -- MyRA's the New Kid in Town

TheStreet.com

NEW YORK (TheStreet) -- Move over Individual Retirement Account, or IRA; there's a new girl in town, and her name is MyRA. One of the little nuggets garnered from last night's State of the Union address was that President Obama, via executive order, will direct the U.S. Treasury to create a new retirement account, called "my retirement account", or "MyRA." The stated intention is to encourage more workers to save, especially those that don't have access to a retirement savings vehicle through their employer.

While details are sketchy at this point -- and, of course, the devil is in those details -- we do know that the MyRA will be U.S. government-backed and will be offered via Roth IRA accounts. That being the case, contributions will not be tax deductible, the way traditional IRAs are, but there will be no tax on the proceeds in retirement, the primary feature that makes the Roth IRA so compelling.

In his speech, the president described the MyRA as a "new savings bond that encourages folks to build a nest egg." He went on to say that the MyRA "guarantees a decent return with no risk of losing what you put in." I wonder what the president's definition of "decent return" is?

Encouraging retirement savings or any savings for that matter is a good thing. However, the MyRA looks like another gimmick, and one that does not really offer substantial benefits beyond what employees already have. The segment of the population that the MyRA is geared toward already has the ability to open a Roth IRA, and in many cases a Traditional IRA.

It does appear, however, that the MyRA will allow for larger contributions, up to $15,000 per year. The 2014 contribution limit for Roth and Traditional IRAs is $5,500 ($6,500 if youre age 50 or older).

The notion of a guarantee of never losing principal may seem like an attractive feature. But the president called the MyRA a "savings bond." From the sound of it, the returns will likely be very low, and may not keep pace with inflation. Keep in mind, in this low interest rate environment, EE savings bonds issued between now and April 30 pay .1% interest. (However, after 20 years, EE bonds are guaranteed by the Treasury to double in value, regardless of their rate.) Perhaps the Treasury will create a higher-yielding vehicle for the MyRA, yet another detail to be worked out.

A key component of growing retirement savings is to have exposure to riskier assets like stocks that will provide greater returns over time. That helps grow assets faster than lower-yielding and lower-risk fixed income investments.

The fear of losing money in the markets is very real for many that could not sleep during the 2008 meltdown, and that could be part of the reason for this push to "safer" accounts with government guarantees, such as the MyRA. But that alone will not get the job done.

Encouraging savings is a positive step, but I'm not sure this will achieve a great deal of additional retirement security. It makes me wonder whether the birth of MyRA may also be an admission of what some of us already believe: that social security is not as secure as some in the government have proclaimed, and that the writing is on the wall that benefit cuts and increasing the retirement age will have to occur at some point in the future.

To create real retirement security in this country, the government could start by creating an environment that is conducive to hiring. Many won't even be able to participate in MyRA because they can't find work. First things first.

Finally, how about allowing workers to invest a portion of their social security contributions into the markets? An old idea, for sure, and not a popular one with many, but I have more faith in long-term market returns and my ability to manage a portfolio and reduce risk as retirement approaches, than I do that my guaranteed social security will be there upon my retirement.

At the time of publication, the author held no positions in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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