TRAVERSE CITY — Some investors may question why they should consider a MyRA when so many financial advisors online have panned the concept.
My belief is they are reacting too quickly to the MyRA, which is described by the Department of the Treasury as a new retirement savings account for individuals looking for a simple, safe, and affordable way to start saving. The department says savers will be able to open an account with as little as $25 and contribute $5 or more every payday.
Many years ago, I remember thinking those who bought very boring savings bonds were getting fleeced by investing in bonds which, at that time, were earning a subpar rate of 5.5 to 6 percent. Two things are important about that. First, given today’s interest rates, that return is phenomenal. Second, the interest grows tax-deferred on savings bonds, i.e. you pay no tax until they’re redeemed. This makes them a great place to store and grow conservative assets for those who purchased them in the early 80s. What’s interesting about this lesson I learned? The MyRA may be useful and even beneficial for some. Do I hear a collective gasp?
The account as proposed has the tax qualities of a Roth. That means that after contributions, which are not tax deductible when made, the account grows tax free if you hold it for more than five years. Second, there are very low minimums, like $25 per month sponsored through employers. Third, the MyRA guarantees principle, offering the same interest rate as the current “G” fund in the federal employees retirement account, at a current rate of about 2 percent. This is certainly nothing to get excited about, but guaranteed principle is guaranteed principle.
For those who really don’t care for the gyrations of the stock market, the MyRA may be of interest in more ways than one. Some questions follow that may help in determining your current allocations’ appropriateness, and the potential benefits this type of account may have for you.