The new MyRA

Have you heard the President’s new IRA idea?  It is one that is linked to one if the most successful 401(k) type of investments around, the Thrift Savings Plan or TSP.  This new IRA type of investment is called the MyRA.  This is an attempt of the President to get more people saving for retirement who otherwise would not be doing so.  And the proposed MyRA would be basically designed after one of the investment options in the TSP.  And like the factors that make the TSP so popular the MyRA will have low minimums, virtually no fees, and will be invested in an ultra-safe investment option.

Now unlike the TSP the MyRA will be open to all investors who are looking for a basic return and a guarantee of no loss of their principal.  And why not base it on the TSP as it is a simple retirement plan that has extremely low fees and returns that are benchmarked to an index of some sort.  The current TSP has two bond funds with the most conservative being the G Fund which invests only in short-term US Treasuries that are issued just for the G Fund.  The key to these is that they are short-term in nature but pay interest as if they were intermediate bonds.  This is the investment option that the MyRA will offer to participants.  The second bond fund is a broad index fund of all types of domestic bonds.  The three equity funds are all tied to a benchmark such as the S&P 500 for larger corporations, a small capitalization fund and an international fund that invests in established foreign markets.  The TSP also offers five lifecycle funds for target dated investors who do not want to worry about asset allocation.  This is what makes the TSP work so well, it is simple and there are no confusing choices from which to select investments.  Many 401(k) plans offer dozens of options with most having higher fees than an indexed fund.

These factors keep most Federal employees who have retired in the TSP instead of taking their money out and placing it in an IRA.  With over $400 billion in assets these funds can operate at fees that are close to zero.  It is this factor that will allow the MyRA to offer no or low fees to investors who want a safe guaranteed investment.  And the economies of scale will provide the volume to keep the fees that way just as in the TSP.

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