President Obama unveiled the new “MyRA” plans in his State of the Union speech last night. He stumbled a bit over the name, and there’s still some confusion about what they’ll be called — some of the folks we talked to are pronouncing it “Myra,” like the name. But the idea behind the accounts is simple, according to Karen Friedman, executive vice president and policy director of the Pension Rights Center.
“It’s a starter plan,” she says. “It at least enables people to save in a secure, government-backed account.”
The new accounts are aimed at low-income workers, who have few retirement saving options.
“Roughly half of the workforce right now doesn’t have a pension plan at work,” says David Certner, legislative counsel with AARP. “Which is where most people prefer to save — by having these monies deducted automatically from a paycheck.”
And that’s how the new accounts would work. Employers and their workers have to volunteer to participate in the plan. But once they do, money will be deducted automatically, and invested in safe, government bonds. The initial investment could be as little as $25.
“The little amounts are what end up being the big amounts later on,” says Stuart Ritter, a senior financial planner at T. Rowe Price. “So we shouldn’t be poo-pooing the smallness of getting people started.”
In fact, the Obama administration already has plans for when the accounts get big. Once they hit $15,000, they have to be transferred into a private-sector IRA.
*CORRECTION: The audio accompanying this story misstated the age a person must reach to avoid penalties for withdrawing money from a private-sector IRA. The correct age is 59 and a half. Mandatory withdrawals begin at age 70 and a half.