Doc's note: Today's essay was chosen by one of Retirement Millionaire Daily's managing editors, Steven Longenecker...
In 2014, President Obama launched the myRA retirement savings account. The government spent about $70 million to encourage folks to save. But folks who opened myRA accounts contributed less than half that. This past summer, the U.S. Department of the Treasury finally announced it was phasing the program out.
The whole plan was a crazy example of the government run amuck. So we provided readers with real, useful ways to build their retirement nest egg.
Seventy million dollars... down the drain.
The government wasted a massive amount of money with President Barack Obama's myRA retirement savings account. This week, the U.S. Department of the Treasury finally shut it down.
The myRA accounts were structured like a Roth IRA, but with far fewer earnings for savers. The savings in a myRA could only earn the Treasury rate of return, which was extremely low. MyRA investors would have earned around 2% per year since the January 2014 launch.
In the meantime, the S&P 500 stock market index earned more than 40% with dividends reinvests (for 10.4% per year) – more than four times the myRA return.
As I wrote a few years ago in my Retirement Millionaire special report, "Double Your Returns in Just One Hour a Year," these accounts simply won't do for folks saving for retirement...
Missing out on the returns of stocks and bonds makes it difficult to build up a nest egg, especially with the constant threat of inflation. The promise was that these accounts could help folks with low income get started saving – but apparently, they weren't interested.
All told, about 20,000 folks opened myRA accounts... And participants only contributed $34 million. That's right... the government spent $70 million to get folks to save $34 million.
Spending $2 to save $1 never works out in the long run. And another 10,000 folks opened an account and never contributed a dime.
If you did have a myRA, you can roll your assets over to a Roth IRA – a far better choice for retirement savers. Smart IRA and 401(k) decisions can mean the difference the between living a comfortable retirement filled with abundance... or just barely getting by in your old age.
If you don't have an IRA or a Roth IRA, you're leaving money on the table...
Opening one is as easy as opening any other brokerage account. You can do it with any broker. I like TD Ameritrade and Fidelity, but I've also heard good things about Interactive Brokers. Of course, we don't have a financial relationship with any broker – we work for you.
When registering, you simply select either a traditional IRA or a Roth IRA as the account type...
- A traditional IRA mostly benefits people who expect to be in a lower tax bracket when they retire than when they are working.
- A Roth IRA works best for people in the opposite situation. If you expect that your taxes will be higher as a retiree than as a working person, a Roth is perfect for you.
We often recommend opening both a traditional and a Roth IRA if you are unsure what your tax situation will be in your retirement. That way, you get the benefits of both methods.
Alternatively, a more advanced strategy is to convert a traditional IRA to a Roth. You won't need to pay income taxes on subsequent withdrawals, but you will need to pay a lump-sum tax when you do the conversion. This can get tricky, so we recommend talking with your financial planner about your options.
Opening an IRA will save you tens or even hundreds of thousands of dollars over just a decade or two of retirement savings. That's the real benefit...
When you put money in a traditional IRA, you get a tax deduction for the initial deposit, and the government defers taxes on the money until you withdraw it, typically sometime between ages 59 and a half and 70 and a half.
Deferring taxes saves more than you think. If there are two people, each with $10,000, and one invests in an IRA while the other invests in a trading account and pays taxes, we can see the power of not paying taxes. After 30 years, the tax-deferred account will be worth $996,964. The taxed account will be worth $791,347. That's more than $200,000 extra just by avoiding taxes.
If you're not yet a Retirement Millionaire subscriber, learn about a special "One-Day Cash Event" that could get you cash in your mailbox... The last time the government did this (in 2012) you could have collected separate, one-time payments of $1,383... $2,844... and $3,620, while barely lifting a finger. Click here to learn how to get your "bonus check."
If you're a subscriber, read "Double Your Returns in Just One Hour a Year" right here.
Here's to our health, wealth, and a great retirement,
Dr. David Eifrig and the Retirement Millionaire Daily Research Team
Buffalo, New York
December 21, 2017