President Obama announced in last night's (2014's) State of the Union speech that he'll be signing an executive order introducing a new "MyRA" savings program. The U.S. Treasury has the authority to introduce new savings bonds, and the MyRA program is apparently consistent with that preexisting authority. I'm always on the lookout for tax and other financial changes that could potentially benefit Americans living overseas since I am one. Below I'll explain how the MyRA program applies to U.S. nationals living overseas. If you want the short answer, though, it's this: MyRA accounts won't hurt anybody living overseas (or anybody else for that matter), but they'll be of very limited benefit.
The Wall Street Journal has a preview explaining these new accounts. If you're a U.S. national working overseas, MyRA might be useful if all of the following conditions are true:
1. You work for a U.S. employer and are paid on U.S. payroll.
2. Your U.S. employer does not offer a 401(k) or other, similar tax-advantaged retirement savings program.
3. Your employer chooses to participate in the MyRA program starting as early as late 2014.
4. You earn less than $191,000 per year.
5. You are willing to making an initial investment of at least $25 and recurring investments of at least $5.
6. You want to allocate these savings to U.S. government bonds.
7. Presumably, speculatively, you have earned income above the FEIE/FHE limit (but less than $191,000 per year), or you live in a comparatively high tax jurisdiction and thus do not take the FEIE/FHE. (But we don't know yet for sure if this part will be more IRA-like or more 401k-like, so watch this one.)
I have to imagine most Americans living overseas won't meet all of these requirements. That's a very tough set of qualification requirements if you're living overseas.
If you participate, Treasury will invest your MyRA funds into the same bonds as the U.S. federal workers' Thrift Savings Plan Government Securities Investment Fund. You can never lose principal -- the government guarantees that. And the fund's variable yields should be substantially better than, say, bank checking and savings accounts. But they'll be government bond yields, currently in the low single digit percentages. The interest you earn is tax free (like a Roth IRA). Interestingly, according to the Wall Street Journal, you will be able to withdraw MyRA funds at any time without penalty quite unlike Roth IRAs. So actually a MyRA account, despite its name, could be a decent deal to save for, say, a down payment on a home, a new washing machine, or some other large future purchase, assuming the WSJ is correct.
Your contributions to your MyRA account will be processed by participating employers as payroll deductions. The President and Treasury want employers to automatically enroll their employees (though still allowing them to disenroll if they choose at any time, or to adjust their contribution levels), but requiring employers to auto enroll their employees would seemingly require Congressional action which presumably is not likely in the near term. Lots of employers with 401(k) plans have started auto enrolling employees, so there seems to be reasonable willingness among at least those employers to do so voluntarily.
You'll be able to carry your MyRA account with you when you change jobs. You can roll a MyRA account into a private IRA (presumably a Roth IRA) at any time, and you must roll a MyRA account into a private IRA once the account balance hits $15,000. I have to imagine that $15K cap is a sop to the big, politically powerful financial sector interests that like IRAs just as they are, with the commissions and fees they collect.
Note that you cannot contribute to a MyRA account without earned income, specifically U.S. paid earned income from a U.S. employer without a 401(k) (or similar) plan. And I assume FEIE/FHE-excluded income doesn't count, though we'll have to see.
I assume that MyRA contributions will count against annual IRA contribution limits (currently $5,500 per person under age 50), though the WSJ didn't clarify that point.
I think it's fair to say that any MyRA account benefits for Americans living overseas will be rather "accidental." This program does not appear to be "expat aware," and that's not a surprise. It also provides zero benefit, assuming the WSJ is correct, to disabled Americans and unemployed Americans because of the earned income requirement. In short, MyRA accounts are by no means a complete solution for the breakdown in the U.S. retirement savings system with the almost total collapse of private defined benefit pensions in particular. But given Congressional (specifically House) inaction to address that problem, MyRA accounts are probably the best that can be done with an executive order.
The President urged Congress (read: the House) to act, in particular to reorient the tax code to provide the biggest incentives to save for retirement to those in lower income levels. Right now it's the opposite: the more you earn, the bigger your tax benefits for retirement savings. So the tax code is really encouraging a lot of savings behavior that would occur even without the tax incentives, and under-incenting those with lower incomes who really are facing the biggest financial problems in their retirement years.
To which I would add that it's even worse for Americans living overseas. The FEIE/FHE is nice, but taking those exclusions wipes out the ability of lower and moderate Americans living overseas to contribute to IRAs. Plus many/most overseas Americans aren't on U.S. payroll, so they can't contribute to 401(k)s at all. It's much, much harder to qualify for tax-advantaged retirement savings vehicles if you live outside the U.S., most especially if you're low or moderate income. I think that's a problem, but it'll require Congress (including the House) to fix it.
The above information is very preliminary. We'll have to wait to see more information about the MyRA accounts to fully understand all the rules.
The Wall Street Journal has a preview explaining these new accounts. If you're a U.S. national working overseas, MyRA might be useful if all of the following conditions are true:
1. You work for a U.S. employer and are paid on U.S. payroll.
2. Your U.S. employer does not offer a 401(k) or other, similar tax-advantaged retirement savings program.
3. Your employer chooses to participate in the MyRA program starting as early as late 2014.
4. You earn less than $191,000 per year.
5. You are willing to making an initial investment of at least $25 and recurring investments of at least $5.
6. You want to allocate these savings to U.S. government bonds.
7. Presumably, speculatively, you have earned income above the FEIE/FHE limit (but less than $191,000 per year), or you live in a comparatively high tax jurisdiction and thus do not take the FEIE/FHE. (But we don't know yet for sure if this part will be more IRA-like or more 401k-like, so watch this one.)
I have to imagine most Americans living overseas won't meet all of these requirements. That's a very tough set of qualification requirements if you're living overseas.
If you participate, Treasury will invest your MyRA funds into the same bonds as the U.S. federal workers' Thrift Savings Plan Government Securities Investment Fund. You can never lose principal -- the government guarantees that. And the fund's variable yields should be substantially better than, say, bank checking and savings accounts. But they'll be government bond yields, currently in the low single digit percentages. The interest you earn is tax free (like a Roth IRA). Interestingly, according to the Wall Street Journal, you will be able to withdraw MyRA funds at any time without penalty quite unlike Roth IRAs. So actually a MyRA account, despite its name, could be a decent deal to save for, say, a down payment on a home, a new washing machine, or some other large future purchase, assuming the WSJ is correct.
Your contributions to your MyRA account will be processed by participating employers as payroll deductions. The President and Treasury want employers to automatically enroll their employees (though still allowing them to disenroll if they choose at any time, or to adjust their contribution levels), but requiring employers to auto enroll their employees would seemingly require Congressional action which presumably is not likely in the near term. Lots of employers with 401(k) plans have started auto enrolling employees, so there seems to be reasonable willingness among at least those employers to do so voluntarily.
You'll be able to carry your MyRA account with you when you change jobs. You can roll a MyRA account into a private IRA (presumably a Roth IRA) at any time, and you must roll a MyRA account into a private IRA once the account balance hits $15,000. I have to imagine that $15K cap is a sop to the big, politically powerful financial sector interests that like IRAs just as they are, with the commissions and fees they collect.
Note that you cannot contribute to a MyRA account without earned income, specifically U.S. paid earned income from a U.S. employer without a 401(k) (or similar) plan. And I assume FEIE/FHE-excluded income doesn't count, though we'll have to see.
I assume that MyRA contributions will count against annual IRA contribution limits (currently $5,500 per person under age 50), though the WSJ didn't clarify that point.
I think it's fair to say that any MyRA account benefits for Americans living overseas will be rather "accidental." This program does not appear to be "expat aware," and that's not a surprise. It also provides zero benefit, assuming the WSJ is correct, to disabled Americans and unemployed Americans because of the earned income requirement. In short, MyRA accounts are by no means a complete solution for the breakdown in the U.S. retirement savings system with the almost total collapse of private defined benefit pensions in particular. But given Congressional (specifically House) inaction to address that problem, MyRA accounts are probably the best that can be done with an executive order.
The President urged Congress (read: the House) to act, in particular to reorient the tax code to provide the biggest incentives to save for retirement to those in lower income levels. Right now it's the opposite: the more you earn, the bigger your tax benefits for retirement savings. So the tax code is really encouraging a lot of savings behavior that would occur even without the tax incentives, and under-incenting those with lower incomes who really are facing the biggest financial problems in their retirement years.
To which I would add that it's even worse for Americans living overseas. The FEIE/FHE is nice, but taking those exclusions wipes out the ability of lower and moderate Americans living overseas to contribute to IRAs. Plus many/most overseas Americans aren't on U.S. payroll, so they can't contribute to 401(k)s at all. It's much, much harder to qualify for tax-advantaged retirement savings vehicles if you live outside the U.S., most especially if you're low or moderate income. I think that's a problem, but it'll require Congress (including the House) to fix it.
The above information is very preliminary. We'll have to wait to see more information about the MyRA accounts to fully understand all the rules.
