Thursday, January 22, 2015

The myRA And Automatic IRA Enrollment: Not A Leg Up, But A Leg Trap

Last year in his SOTU address, Obama pushed a savings vehicle called the "myRA". Basically, it's a severely limited Roth IRA that is only invested in .gov bonds.

This year in the SOTU, Obama called for automatic IRA enrollment of employees at any company with more than ten employees.

It hasn't happened yet, but the next step will be a call to make it law that these automatic enrollments be in the myRA. 

That's all this is, no two ways about it. People who allegedly can't afford to open retirement accounts on their own (which is a bald-faced lie) will be conned into loaning money to .gov at rates of return that won't even keep up with inflation. The siren song of "savings security" that these lying .gov predators promise completely disregards the loss of purchasing power that one's funds will suffer by languishing in such a poorly performing account. 

No doubt that once .gov has suckered a sizable number of people into these accounts, the rules that define and govern them will be changed. The two key things that I expect they will alter will be to lift the lifetime contribution cap on these accounts, presently $15k, and to impose penalties and taxes on savers who attempt to withdraw their principle, which at present is something one can do in any Roth IRA. They will count on the apathy of automatically-enrolled participants in this scheme to continue throwing money down this hole and will continuously increase the maximum size of these accounts in order to do so, while imposing penalties on withdrawals in order to double-dip their victims.

This is a trap, plain and simple. Stay out of it and build your own security. 


Ahkenaten Kor said...

I've never trusted this or any other administration to look out for my well-being. Once I realized that the days of companies taking care of their workers through pensions were over, I immediately decided to become an entrepreneur. It's sad to see so many people be gullible and fall for what is yet another "quick fix" scheme by our government. Once I retire in a couple years, I definitely plan to do business elsewhere internationally. I know they passed a law last year that forces American citizens with foreign investments to pay taxes on them, but it's better to be involved with a stable economy when the turd hits the fan. Excellent post, Paul...

Paul E. Zimmerman said...

Thanks for the compliment!

Last time I looked into it, as long as you reside outside of the U.S. and your foreign earned income is below $96k, the income exclusion on such income would cover you. One example of how to use this, unless anything has changed with these locales: it is possible to set up an IBC in Belize, which are not taxed, gain residency in Panama, which does not tax foreign earned income, and keep the income from the IBC below the $96k annual threshold. The real key to it all though is that foreign residency, and remaining outside of the U.S. for a sufficient amount of time to qualify for the exemption.

The other possibility, and a far easier option if one has the right temperament: embrace minimalism and keep your passive income below taxable levels here in the U.S. If you do that, for .gov to get at you they would probably have to push the tax brackets down so far that it would spark a revolt.

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