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Thursday, October 23, 2014

Do you trust the feds to manage your retirement fund?

One thing was clear after President Obama’s not-so-interesting fifth State of the Union address: He is gearing up to borrow and take more from working- and middle-class people.

Meanwhile, on Long Island, things are unclear as voters in the 3rd Congressional District gear up for a fight. This is a seat that will be vacated by longtime Rep. Carolyn McCarthy. Historically, the district was a Republican stronghold, but in recent years it has shifted, and now has a Democratic advantage. Kathleen Rice, Nassau County’s district attorney, has announced her candidacy on the Democratic side. While Republicans have yet to choose a candidate, she will be a formidable one, and it will be a race to watch.

In Washington, the Federal Reserve is beginning to ease away from the Quantitative Easing program that protected Americans by easing interest rates. As programs like this are phased out, Obama and other leaders in Washington are going to have to find new ways to finance — and slash — the government’s rising debt.

As such, the president announced his plan to create a 401(k) plan for workers who currently do not have one. The program, “myRA,” was described by Obama as a “new savings bond that encourages folks to build a nest egg. MyRA guarantees a decent return with no risk of losing what you put in.”

The next day, Obama signed a presidential memo that directed the Treasury Department to create the government-backed retirement accounts. They will target millions of low- and middle-income Americans who currently do not have access to employer-sponsored retirement plans.

All workers may invest in the accounts, including those wishing to complement already existing 401(k)s as long as their household income is below $191,000 per year. Participants can save up to $15,000, or for a maximum of 30 years, in their accounts before transferring their balance to a private-sector Roth IRA.

The accounts will function as Roth IRAs. However, unlike Roth IRAs, which can be invested freely, myRA accounts will be invested solely in government savings bonds. The U.S. government will back them, and the president has guaranteed that savers can never lose their principal investment. There will be no fees or administrative expenses.

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