NCPA - National Center for Policy Analysis

MyRA or the Highway?

February 12, 2015

The Obama administration directed the Treasury to establish individual retirement accounts known as "MyRA" accounts beginning January 2015.  The MyRA uses after-tax dollars and, like the Roth IRA, allows the money plus any accrued interest or dividends to be withdrawn tax-free upon retirement.   But there are more limitations on the MyRA than the Roth IRA, writes Pam Villarreal, senior fellow at the National Center for Policy Analysis.  Roth IRAs established through an investment firm, for instance, can be invested in individual stocks, bonds, cash or mutual funds.  The MyRA is limited to Treasury bond investments.

Thus, the MyRA has several significant drawbacks:

  • Because the MyRA only invests in government debt (bonds), it is not the wisest choice for workers who have decades before retirement.
  • The MyRA is only available to workers whose employers are set up to make automatic payroll deductions.
  • The MyRA account is limited to 30 years or a $15,000 balance, at which time the account must be rolled over into a private IRA.

MyRA investments will produce rates of return similar to the Government Securities Investment Fund (G) in the Federal Thrift Savings Plan available to federal employees.  Since 1987, the average annual rate of return of the G fund has ranged from 1.89 percent to 5.54 percent, depending on the length of time the bond is held.

Arguably, there are better options for savers than the MyRA.  To illustrate this, consider a stock fund, such as the The Vanguard Windsor II fund, which has been around as long as the FTSP G fund, earned a 9.4 percent annual return on investment (before adjusting for inflation) since 1987. Over the same span of 26 years, the FTSP G Treasury bond fund yielded an annual return on investment of only 5.54 percent (before inflation).

With all the available retirement account services in the market now, the MyRA is just a poor attempt to reinvent the IRA wheel, says Villarreal.

Source: Pamela Villarreal, "MyRA or the Highway?" National Center for Policy Analysis, February 12, 2015.


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