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The Death of myRA

Monday August 7th, 2017   •   Posted by Craig Eyermann at 6:22am PDT   •  

There is fantastic news coming out from Washington D.C. this week. The U.S. Treasury Department is shutting down a money-losing retirement account program that was aimed at getting low income-earning Americans to invest their retirement savings in its very low interest rate-paying U.S. Treasury bond fund for U.S. government employees (the Thrift Savings Plan G Fund).

The New York Times describes just how costly the program has been to U.S. taxpayers.

An Obama-era program that created savings accounts to help more people put away money for retirement is being shut down by the Treasury Department, which deemed the program too expensive.

The 30,000 participants in the program, known as myRA and intended for people who did not have access to workplace savings plans, were sent an email on Friday morning alerting them of the closing. Participants were informed that they could roll the money into a Roth individual retirement account, the Treasury Department said.

President Barack Obama ordered the creation of the so-called starter accounts three years ago, and they became available at the end of 2015. Since then, about 20,000 accounts have been opened, with participants contributing a total of $34 million, according to the Treasury; the median account balance was $500. An additional 10,000 accounts whose owners have not contributed to them have been opened.

Jovita Carranza, the United States treasurer, said in a statement that demand for the accounts was not high enough to justify the expense. The program has cost $70 million since 2014, according to the Treasury, and would cost $10 million a year in the future.

Longtime MyGovCost readers may be more familiar with the U.S. Treasury Department’s myRA program than its intended market, which we described as “little more than a channel for boosting the sales of long-term, low-yielding U.S. Treasuries by targeting low-income earners”, which we later pointed out the Treasury Department’s hypocrisy in putting the interests of the government to borrow money at the lowest rates possible ahead of the interests of the program’s customers to build up their retirement savings.

President Obama’s “myRA” retirement account program represents an early step in that direction, which is currently being targeted at exploiting the most financially illiterate Americans, who likely don’t appreciate that when more money floods into Treasury auctions to buy government bonds, the yield (or interest rate) that the government will pay to borrow the money falls, which in turn means a worse rate of return for them in their myRA retirement account, which in turn would make it harder to accumulate a decent amount of money to even be able to afford to retire.

That President Obama’s myRA program is a bad deal for regular Americans can be confirmed by what some of the same people backing the President’s initiative are doing to advance the financial interests of the federal government’s employees in their default investment options for their Thrift Savings Plan retirement accounts, where currently, the default option for federal employees is to invest in the exact same government bond funds as for the myRA accounts. Because federal employees want better returns and bigger retirement savings, they’re pushing for legislation to have the default investment option changed to one that has a much higher rate of return.

Americans who have money in a myRA account can have them rolled into a tax-free Roth Individual Retirement Account (Roth IRA). The press release announcing the termination of the myRA program revealed just how redundant the program was in noting that “retirement savers have options in the private sector that offer no account maintenance fees, no minimum balance, and safe investment opportunities”.

In other words, there was never a legitimate need to have the federal government get into the retirement savings business in the first place. U.S. taxpayers will save at least $10 million per year because the Treasury Department learned an important lesson.

Now, if the Treasury Department would just apply the lessons learned to the federal government’s failing student loan business, U.S. taxpayers might see savings in the billions.

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August 2017