The myRA was announced during President Obama’s January 2004 State of the Union Speech to much fanfare from political pundits an the media and after a few months, even though those in the financial industry seem to be set against it, the Treasury is moving forward on it.
This proves, again, that when it comes to your Social Security and the costs associated to your health in retirement the very same political pundits that are bashed on a consistent basis actually know more about what is best for not only retirees, but also the nation.
The President’s myRA, according to the US Treasury is:
A retirement savings account for individuals looking for a simple, safe, and affordable way to start saving. Savers will be able to open an account with as little as $25 and contribute $5 or more every payday. myRA balances will never go down, and there will be no fees.
Initially, myRA will be made available through employers and the investment held in the account will be backed by the U.S. Treasury. myRA will be Roth IRA accounts available to anyone who has an annual income of less than $129,000 a year for individuals and $191,000 for couples. myRA will be for savers who do not have access to an employer-sponsored retirement savings plan. myRA is designed for savers who want an investment with a low opening amount.
The myRA investment will earn interest at the same variable rate as the Government Securities
Investment Fund in the Thrift Savings Plan for federal employees. Savers may voluntarily roll over myRA to private-sector retirement accounts at any time. Once a saver’s myRA reaches $15,000, or after 30 years, the balance will be transferred to a private-sector retirement account. Treasury will finalize transfer procedures when it launches the myRA program later this year.
The knee jerk response was this is another federal boondoggle. But is it really? Sure, you can take the position that this just away for the government to get the general public to buy the debt. There may be an element of truth to that. But think about it in the context of Medicare.
What do I mean? Medicare is means tested and the means testing is based on income. Simply put, the more income you earn the more you pay for Medicare premiums (Parts B and D). But it’s not just any income. It’s modified adjusted gross income (MAGI). MAGI is simply defined as anything on lines 8B and 37 of the IRA Form 1040.
The means testing is nothing new. It goes back to the 2003 Medicare Modernization Act, and the actual means testing began in 2007. Interestingly, the current rules exempt Roth IRA distributions from the means testing.
So, now, we have President Obama and the US Treasury giving us an incentive to save. Granted it’s not a lot initially, but the distributions are exempt from Medicare means testing. Because it’s a Roth IRA chassis, the distributions should be free from income tax too. Plus, you’ll be allowed to convert the myRA to private account in the marketplace.
So who is the one who is out of touch? Your financial advisor or the pundits poking fun at this ‘scheme,’ or the government? Who is recognizing that there’s a problem with Medicare means testing and who is giving you another option to get ahead of the issue of saving for retirement and healthcare.
If your financial advisor is doing his or her job, they should recommend this if you meet the criteria. Besides the planning aspects for Medicare and income taxes, it’s an allocation for fixed income as well.
But the $1 million question will still be, does your financial advisor know that the rules of retirement have changed? Do they understand Medicare means testing and how it affects your retirement income?
If they did there would be no need for President Obama to enact legislation to create his myRA.
Robert A. Klein
May 20, 2014