To be honest, I get scared when any president announces a new fangled retirement planning option in his state of the union address. It usually means headaches and confusion. This one, the myRA, isn’t that confusing but it isn’t very useful either.
So, what did we get last night with the announcement of myRAs? Any charitable planning options here?
Here is a short article from the Wall Street Journal going over the basics of the new myRA option: http://blogs.wsj.com/washwire/2014/01/29/nine-things-to-know-about-obamas-myra-accounts/
Here is my ultra short explanation – it is basically Roth IRA, Jr (or Roth’s daughter myRa). Deposit after-tax dollars (i.e. no tax savings for funding the account – not yeah!) in your myRA account. They grow tax free (yeah!). But, the investments are limited (not yeah!) to some guaranteed (yeah!) Gov’t investment! But these Gov’t investments yield 1% or so a year (not yeah!). No penalty for early withdrawals (yeah!). You have to roll your myRA into a Roth IRA, Sr. account when it hits $15,000 and then you get your Roth penalties for early withdrawals (not yeah!) and Roth taxation of growth (not yeah!).
Wait a second! This is supposed to be some big plan for Americans to start saving for retirement? Are you kidding me?
As for my second question, there are NO apparent charitable planning opportunities here. Like the Roth IRA, these are assets that you use for yourself or you leave to your heirs.
What good do I see in this option? Well, I can tell my mom that if she likes the yield (she does have money sitting in bank accounts!), she can put funds into such an account and see it grow tax free and withdraw tax free. As long as she doesn’t let it go over $15,000 – then she would need to put it into a Roth (with it’s not-so-exciting rules).
Basically, the government is giving these new small account holders tax-free growth with the ability to withdraw as needed with no penalty and no tax on growth! The financial advisor in me is saying: why not have my mom put $14,900 in such an account, and withdraw the $150 a year income tax free, each year. If she has money sitting in CDs or bank accounts earning the same or less, this is a good deal. Ok, we are talking about $50 a year in tax savings – nothing too exciting.
What about nonprofit’s issuing CGAs for IRA funds? At least you will have teams of fundraisers hawking them and people will be encouraged to partner with their favorite charities (while also incurring more income taxes – hint, hint – more tax revenue!?). Oh well. Almost 20 years of following Presidents and Congress on tax and planning ideas has got me a bit jaded.