In the State of the Union Address, President Obama announced that he has directed the IRS, through executive action, to create a new savings vehicle called “MyRA” (pronounced like “IRA”).  While details are scarce, it appears to be a hybrid of a savings bond and an IRA.  Until the IRS provides some guidance, we won’t know whether/how individuals will benefit from MyRAs, but at first glance, there appear to be some clear advantages and disadvantages. 

The biggest advantage is that the principal investing in a MyRA will be backed by the government so that, unlike 401(k)/403(b)/IRA/Roth IRA plans, individuals will not lose their contributions, even if investments tank, as in the Great Recession.   Another advantage is that the account can be funded through payroll deductions, but no employer plan is required, so individuals under a certain income level can create this account on their own. 

Like a Roth IRA, there is no pre-tax benefit but no tax penalty for withdrawals.  This can be an advantage or disadvantage, depending on the investor’s particular financial situation. 

The principal disadvantages are that the MyRAs are anticipated to have low risk and low return (unlike a 401(k) or IRA, where the accountholder selects appropriate level of risk/return), and that MyRA holders will be forced to transfer their MyRA funds into a traditional IRA once the account (a) hits $15,000 or (b) is in place for 30 years.

We anticipate that the IRS will be releasing guidance, and perhaps requesting comments from the public re: how MyRAs will operate and who will operate them, in the next few months.