Boulder Estate Planning Legal Blog
As ever, your watchdogs, Bennett and Diedre Braverman were glued to the national scene when President Obama gave his State of the Union address in case anything of value fell out for us to tell you about.
This won’t be of interest to many of you, I’ll admit right up front. It’s a niche blog post. But I couldn’t ignore it because for those of you who own businesses or have children launching into the workforce, this could be great news!
If you don’t offer a traditional retirement plan, until now, you’ve been at a loss, without tools to help your lowest-wage earners with retirement.
Likewise, if your kids are at a first or second job, they probably aren’t being offered the full retirement package and this could help them start the retirement savings habit as soon as they start working – a great idea!
Not to mention the tax savings…
The Obama administration has created a new retirement plan just for those starting out with retirement savings. It’s called the MyRA and if you blinked during the State of the Union address, you might have missed it.
It boils down to a safe, entry-level Roth IRA for people who want to invest as little as five dollars ($5.00) at a time with zero risk. It has a fixed return.
A Quick Lesson on Basis
I say it’s like a Roth-IRA because withdrawals of principal (technically, of basis) are tax-free. That distinction between principal and basis is an important one when our hypothetical investor gets into the big bad unsheltered world of retirement savings where investments go down sometimes.
If an investment goes down, and you get to withdraw principal tax-free, you just lost some of your tax-free money because your principal disappeared when your investment dropped below what you put into it.
But if you can withdraw tax-free the value of what you put in – regardless of what it is worth today – you get to withdraw your “basis”. So if your investment in Buff Brownies got cut in half but your investment in Clean Cars doubled, you can withdraw a lot of those Clean Cars gains tax-free (normally gains would be subject to tax) because you are applying the basis leftover from your investment in Buff Brownies that you can’t use against Buff Brownies because Buff Brownies’s stock dropped and the money isn’t there to withdraw.
To qualify:
- The employer must not offer a “traditional” retirement plan (Obama didn’t define “traditional” during the speech so we’ll have to see what that means in the coming months;
- The participant (kid/employee) must earn less than one hundred, ninety-one thousand dollars ($191,000) per year (Obama didn’t specify whether that was individual or family income so that we’ll have to wait and see on that too).
The participant’s first investment must be at least twenty-five dollars ($25). Subsequent investments must be at least five dollars ($5) each.
Once the MyRA totals fifteen thousand dollars ($15,000), the participant must roll it over into a private Roth IRA. It is unclear if they may then open another MyRA.
For our readers who work with and can help people who would benefit from knowing about this new plan and for those who have children who are just launching into their work careers and can benefit from having a retirement vehicle that starts them early on the path to a lifetime savings habit, I hope this has been a helpful blog article. Please share your thoughts in the comments.
Rabbit and Boa Constrictor thanks to herpcenter.com
If you’d like me to keep you up to date as this rabbit of legislation wends its way through the boa constrictor that is our nation’s capitol, please let me know in the comments why you’re interested in it – whether it’s for your own use, for your children, for sharing with friends, with employees, or for some other purpose. It’ll help me give you the most relevant information.
And be sure to check “Yes” on the poll! Thanks!
