During the State of the Union address President Obama proposed the establishment of the MyRA, a government option for individuals and employees to save for retirement. Typical of SOTU, ideas are introduced in concept and short on details.
However, my first thought is: Is this another process in which the government expends money and resources to solve a problem that doesnt exist? Last week The Wall Street Journal reported the discrepancy of government census reports indicating a low percentage of baby boomers are not prepared for retirement and the inadequate support Social Security will provide. In reality, based on IRS filings by corporations and individuals that report retirement plan contributions and distributions, a significantly higher percentage of employers offer 401(k) retirement plans and retirees have substantially more saved in their 401(k) accounts than government reports would lead us to believe.
The second concern is with the proposed structure of paying taxes now to contribute into the MyRA retirement account with the promise that when distributions are taken the politicians then in government will honor the promise to take distributions tax-free. I question why Americans would risk more of their retirement savings being double-taxed considering the broken promise of mandatory Social Security taxable payroll deductions that 85% of Americans receiving Social Security benefits are taxed again on the distributions.
The government did the American employee a great service by expanding the contribution allowances from formerly 15% of compensation (not to exceed $10,500) to 100% of compensation (not to exceed $17,500 or $23,000 if over age 50). It would be my opinion that government efforts and taxpayer funds be directed to educating employees on the importance of contributing into their 401(k) accounts and providing additional tax incentives for those few employers that have not already established a 401(k) plan.
Anton Bayer, CFP, is founder and CIO of Up Capital Management. He has over 30 years of experience providing retirement plan services to trustees, administrators, and participants of all sizes and types of retirement plans, including new start-up plans, union pension plans, and multistate large-scale plans that include defined contribution and defined benefit plans.
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