Why myRA Won't Be the Next Big Thing in Gifts of Retirement Plan Assets

Bill_Zook_emailIn his State of the Union address in January, President Obama announced his intention to make a new type of Individual Retirement Account (IRA), called a “myRA,” available to certain taxpayers.What does this mean to you in working with planned gift prospects and their advisors?

MyRAs would have of the following basic characteristics:myRA-300x225

  • MyRAs would be created by the Treasury Department, pursuant to a presidential memorandum dated the day of the address but not actually signed until two days later, whereas existing IRAs are established under the Internal Revenue Code.
  • At least initially, myRAs would be available only to those who work for entities that agree to offer the accounts to their employees. Employers will have some incentive to do this because they would not have to make myRA contributions, and the federal government would handle all the administration on a no-fee basis. An additional incentive is that the account would be portable – that is, an employee would be able to retain his or her account if he or she gets a new job (or a second job).
  • Contributions could be made by employees whose household income is less than $191,000 ($129,000 for those filing their tax returns individually) – even if they also have 401(k) accounts. The initial contribution could be as little as $25, with each subsequent contribution being as little as $5. Contributions made during a calendar year would be subject to an upper limit, currently $5,500.
  • Because myRAs would invest solely in federally-backed securities, they would be effectively guaranteed not to lose value. This also means, however, that what they earn each year could be expected to be modest, at least for the foreseeable future.
  • A myRA would essentially be a new form of Roth IRA. Contributions are to be made with after-tax dollars, with distributions eligible to be taken tax-free starting as early as age 59-1/2. Moreover, once the value in a myRA reaches $15,000 (or the myRA becomes 30 years old), it would need to be converted to a Roth IRA, although a taxpayer could make such a conversion at any time.

Implications for Gift Planners

This last aspect makes it unlikely that charities will ever receive much from myRAs. A donor has no income tax incentive to leave to charity upon death any of what remains in a Roth IRA. Indeed, such assets are best left to family members or other individuals, as they money will not be subject to income tax when received by them.

Of course, donors do occasionally designate charities as beneficiaries of some or all of what remains in a Roth IRA. When the IRA charitable rollover was an option, there were probably a small number of lifetime distributions to charity from Roth IRAs (as there will be if the rollover returns). Nevertheless, for the time being, gift planners will do better to encourage donors to consider the choices they already have with regard to the existing types of IRAs – and qualified retirement plans – other than Roths.

Questions about what types of assets are good choices in structuring a planned gift? Curious about how to introduce options with prospective donors? We can help! Call us at 888-497-4970 or click below: I'd Like to Learn More