Access to a Retirement Savings PlanAn important motivation behind the myRA, the president said, is the fact that about half of American workers are employed at companies that don’t offer a retirement plan. “While the stock market has doubled over the last five years,” he said, “that doesn’t help folks who don’t have 401(k)s.” However, most people who are not covered by a workplace plan do qualify for a fully deductible contribution to a traditional IRA and are eligible to contribute to a Roth IRA. So, it isn’t just lack of access to a retirement savings plan that’s the issue.
The Cost of Saving for Retirement
While most people not covered by a workplace retirement plan are eligible for an IRA, the myRA does have an advantage when it comes to the minimum amounts needed to fund an account. At Fidelity and TD Ameritrade, you can open an IRA with no minimum required starting balance and no maintenance fees. However, fund minimums — or in the case of ETFs, the least expensive share of a no-commission fund — will require at least $30-$50 as a minimum initial investment.
Still, in exchange for that slight increase in cost, you gain the ability build a more diversified and aggressive portfolio than you can with a government bond-only myRA. So, for those with truly minimal amounts to invest, a myRA may be appealing. But for those with just slightly more than that, opening an IRA at a brokerage like Fidelity or TD Ameritrade would seem to make more sense. And switching to a private sector IRA sooner—when the balance gets to $1,000, instead of $15,000—would make more sense as well. You can open an IRA at Vanguard with a minimum initial investment of $1,000. That’ll give you access to a limited set of Vanguard funds. Or, a $3,000 balance makes all Vanguard funds available, which creates the opportunity to use SMI’s Just-the-Basics strategy.
One of the most significant myRA benefits the administration is playing up is the ability for workers to make contributions through payroll withholding, which has proven to increase participation. In fact, the administration may encourage employers to automatically enroll employees. That’s been the trend with 401(k) plans in recent years, and making people choose to opt out rather than opt in has proven to drive participation rates up.
My initial take? If the myRA becomes a reality, it would likely get more people saving earlier. Simplicity and safety are bound to be two very appealing benefits to those who haven’t started saving for retirement. What are your thoughts on the myRA?