“MyRA”s Good For Nothing Unless You Like Investing in Government

I hope you had better things to do than to watch the State of the Union commercial. That said, Obama used the occasion to announce that his administration would be launching something he called “MyRA” that is worth a little mention hereabouts.

The initiative is apparently designed to be a stripped-down savings vehicle for low-income folks who are currently discouraged from saving in IRAs and Roth IRAs and who don’t have the opportunity to join 401k plans. Obama apparently has the authority to launch this program without going through Congress first, and he plans to make “MyRA”s a reality by the end of the year.

Tax-wise, the accounts will work like the Roth variety of IRA, which is to say that any deposits to the accounts will come from the account-holder’s taxable income, but any returns on the deposit while it remains in the account will be tax-free gains. There will also be fewer restrictions on withdrawals than with a traditional IRA (you can withdraw your deposits at any time without penalty, though you must keep any tax-free gains in the account until you reach age 59½, barring some exceptions).

The new accounts are meant to be a bridge to regular IRAs, sort of like an IRA with training wheels. Once your “MyRA” grows to $15,000 (or once you’ve had it for 30 years), you have to roll it over into an ordinary Roth IRA (and you can do so earlier if you want). The advantage of these accounts over ordinary Roth IRAs is that there aren’t any investment fees and the minimum investment is low.

The accounts prioritize safety over returns; the government guarantees that your account won’t lose money, and ensures a fairly predictable and modest interest rate on deposits. How will it do this? From what I hear, the plans will be based on the Thrift Savings Plan “G Fund” that the federal government already manages for its employees. And here’s the catch for tax resisters and those promoting tax resistance: the G Fund is invested in U.S. Treasury bonds. That is to say, investors in the G Fund (and presumably depositors in the new “MyRA”s) are loaning their money to the government and thereby contributing to the part of the government budget that is debt-financed. This of course is not something that tax resisters will want to do or to encourage.

At one point in the United States there seems to have been a craze for convincing a town to borrow money to bring the railroad to town, whereupon politicians and other scoundrels would run off with the money and the railroad would never materialize. I’ve found examples from a several places. They come to my attention because the ripped-off citizenry would often balk at raising taxes to pay off the bonds that were issued to fill the robbers’ stash bag.

Here’s another example, from the Cuba, New York, Daily News:

There is much opposition in the town of Lewiston, Niagara county, to pay the railroad tax. This tax is to pay off the bonds of the town for the Lake Ontario Shore R’y, which, it is claimed, were fastened upon the town by unfair means. Many are unable to pay the tax and others refuse to pay this part of the annual levy.