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MyRA: The Good, Bad and Ugly

Robert Berger

In his State of the Union address, President Obama announced plans to launch another retirement savings option. In addition to the 401(k), 403(b), 457, IRA, Roth IRA, Roth 401(k), SEP IRA and a host of other retirement accounts, we now have the myRA, short for "My Retirement Account."

Bypassing Congress, a few days later Obama signed a presidential memo directing the Treasury Department to create these retirement accounts. The question remains just what myRA accounts offer and whether they are a good deal.

How myRA accounts will work. The myRA account is designed for those who do not have access to a workplace retirement account. Eventually, anybody who has direct deposit available to them will be able to sign up. As long as household income falls below $191,000 a year, even those with access to 401(k) accounts will be able to take advantage of a myRA.

The account will work like a Roth IRA. Contributions will be made on an after-tax basis, but the account will grow tax-free. The only investment option will be in government savings bonds. The bonds will be backed by the U.S. government, so account holders can never lose the money they've saved.

The initial investment can be as low as $25, and contributions through automatic payroll deduction can be as low as $5. The maximum annual contribution will be $5,500 (which may be adjusted later), and the total contribution limit is set at $15,000. Once this limit is reached, savers may roll their myRA account over to a Roth IRA.

The good. The hardest part of retirement saving is getting started. The myRA account offers yet another option to simply and easily begin saving for retirement. Employees will sign up at work and contributions will be made through automatic payroll deductions. As a result, the myRA will be easier to start than an IRA, which requires an individual to open an IRA account at a broker or other financial institution.

The bad. The myRA adds another layer of complexity to a retirement savings machine few fully understand now. Between workplace retirement accounts, the Roth version of those accounts and about a dozen different types of IRA accounts, the retirement landscape is littered with confusing options.

A better long-term strategy would be to simplify and consolidate this landscape, not add to it. As it currently stands, how much an individual can set aside in a retirement account depends on a dizzying array of questions including how much you make, whether you or your spouse have a workplace plan, your tax filing status and whether you are self-employed, to name a few.

The ugly. The myRA only invests in government savings bonds. While this simplifies the account, it does so at the expense of capturing market growth. Savers will be guaranteed not to lose any money, but savers will also probably not make as much money as they would if they choose typically more lucrative but also riskier investments.

The deductible and Roth IRA options are already in place to help those without a workplace retirement plan. These options allow retirement savers to invest in individual stocks and bonds, mutual funds and ETFs. Rather than relegating myRA savers to an investment likely to produce fairly low returns, perhaps we should find a way to make IRA options available in the workplace.

Rob Berger is an attorney and founder of the popular personal finance and investing blog, doughroller.net. He is also the editor of the Dough Roller Weekly Newsletter, a free newsletter covering all aspects of personal finance and investing, and the Dough Roller Money Podcast.