Last week, in his State of the Union address, President Obama called for the creation of personal savings accounts called MyRAs.  These accounts are intended for people without employer-sponsored savings plans and will operate in a similar way to Roth IRA’s, including the advantageous tax treatment.  According to a recent New York Times article by Tara Siegel Bernard, “Married couples with modified adjusted gross incomes up to $191,000 and individuals earning up to $129,000 will be able to save up to $15,000 total in after-tax dollars for a maximum of 30 years.  In contrast, Roth I.R.A.’s generally allow employees to save up to $5,500 annually, or $6,500 if they are over age 50, in 2014.”  

The plans would offer a low initial investment requirement of $25 and minimum contributions of $5.  Once the accounts reach $15,000, or have been in existence for 30 years, they will automatically roll into a private sector retirement account.  While money can theoretically be pulled out at any time, the same restrictions that apply to earnings diverted into Roth IRA accounts will apply to MyRAs.  Unlike mutual funds and 401(k) retirement funds, MyRA will operate as an interest bearing savings account rather than a stock portfolio.  While there will be no element of risk of losing money, there will also be no potential gains from increased stock value. 

Admittedly, this is not a full solution to retirement savings, as the maximum amount that can be saved is still limited; however, the Treasury Department’s goal is to get people who otherwise would not save money to start.

There is an initial pilot program for employers who enroll by the end of the year.  While it is yet to be seen how MyRA accounts will factor into the overall landscape of tax planning for individuals and employers, it is a promising option for those looking to save pre-tax dollars and for employers not currently offering this type of benefit.

Allen & Gooch is providing this legal update for informational purposes only. This article should not be construed as legal advice or a legal opinion as to any specific facts or circumstances. You should consult your own attorney concerning your particular situation and any specific legal questions you may have.