Why not a MyRA? Experts Give 10 Reasons

The words have barely faded from the teleprompter, but retirement experts have wasted no time in expressing caution regarding the “myRA” retirement accounts President Obama unveiled in his State of the Union Address. Chris Carosa of Fiduciary News provides a comprehensive list of 10 reasons to be cautious about myRAs.

1. Emergency funds a higher priority. It’s best to establish an emergency fund in a bank account equal to six months of expenses before opening a MyRA.
2. MyRAs are not Risk-free. A conservative investment like a MyRA can minimize risk to the principal, but the price of that safety is heightening the degree to which inflation can erode its purchasing power.
3. MyRAs earn a small yield. The total contribution allowed in a MyRA of $15,000 will be of limited utility in providing for one’s retirement.
4. Existing retirement savings vehicles are better. Roth IRAs and even regular IRAs are better ways to save for one’s retirement and meet the needs of specific segments of the population.
5. MyRA investments are too limited. Other ways to save for retirement make it possible to invest the funds in more ways than just bonds as do MyRAs, and allow employees to choose whether to have deferrals made before or after employment taxes are imposed on a paycheck.
6. Bonds are bad long-term investments. It’s better to invest than simply save, and that a government-guaranteed rate of return will be low and may not overcome the effect of inflation on retirement savings.
7. Limited benefit even to the target demographic. Even low-income individuals could better save by putting their funds in a bank account and then opening a Roth IRA when they have enough money to do so.
8. There is no employer matching for a MyRA. A MyRA does not entail an employer matching an employee’s contributions to an account, which is the best way to save for retirement.
9. It’s little better than a Ponzi scheme. Ilene Davis of Financial Independence Services considers MyRAs so unreliable that she equates them to a Ponzi scheme.
10. Government assurances do not guarantee a return. Davis told Carosa that in her view, MyRAs create “a false sense of security” due to the low amount that can be put in them and that the long-term prospects for the Social Security system bring into question the government’s ability to honor its obligations to MyRA holders.

One potential benefit for advisors: When a myRA reaches the $15,000 limit, it must be rolled into a private retirement account.

John Iekel is Senior Writer at ASPPA, as well as Editor of the ASPPA Net and NTSA Net web portals.