Saving for retirement is important for everyone, but it's especially difficult for those who don't make much money in the first place. If you barely have enough to make ends meet right now, worrying about what'll happen to you years or even decades down the road isn't something you have the luxury to do.

In order to try to solve some of the problems that low-income workers face in saving for retirement, the Obama administration in early 2014 created what became known as MyRA accounts. Despite the best intentions of those who created the program, the MyRA didn't live up to the hopes of those who had established it, and the Trump administration ended up starting to phase out the program last year. For some, the inevitability of that outcome was clear from the beginning.

White House from the north, with Washington Monument in background.

Image source: Getty Images.

What the MyRA tried to do

The MyRA was initially intended as a first retirement savings option for those who hadn't yet had an opportunity to use other alternatives. It was designed to be easy to use for people who didn't have access to a 401(k) or other similar retirement plan at work, providing for workers to make contributions through payroll deduction, contributions from a bank account, or deposit of a worker's tax refund. Low investment limits were available, including a $25 initial contribution and $5 additions.

The MyRA used the same structure as a Roth IRA, allowing for after-tax contributions of up to $5,500 for those who were younger than 50 or $6,500 for those 50 or older. No tax deduction was given for MyRA contributions, but savings built up on a tax-free basis and would be available at retirement without further taxation, just like other forms of Roth IRAs. The same Roth IRA income limitations on contributions also applied to MyRAs, further making clear the intent to aim these accounts at lower-income individuals.

Why MyRAs got phased out

However, MyRAs didn't take off to the extent that their proponents had hoped. After three years, only 30,000 accounts had been opened, with just $34 million contributed in total.

In response, the Treasury Department announced in July 2017 that it would wind down the program. Citing costs of $70 million to manage the program, Treasury officials pointed to the lack of demand for MyRAs to justify the expenses involved in continuing to offer them. Opponents of the decision largely blamed partisan politics, noting that there had been little marketing of the program.

The fundamental challenges of the MyRA program

Yet from the start, the problems involved with MyRAs were evident. The first involved getting people to sign up in the first place. Without any provision for automatic enrollment, potential participants would have to affirmatively seek out the MyRA, something that had traditionally proven problematic for other types of retirement accounts.

In addition, the limitations of the accounts posed a barrier. Because the MyRA was intended to be a starting retirement account rather than a permanent solution for most savers, contributions were no longer allowed once total account balances reached the $15,000 mark. The intent was to get people to transfer their MyRAs to a regular Roth IRA account once they hit $15,000. But some saw that as a potential obstacle, mistakenly thinking that it meant that they couldn't go beyond the $15,000 level and therefore concluding that there wasn't any real point in trying if that was the upper limit.

Most importantly, the investment choices for the MyRA were terrible. The only option was a guaranteed government bond option that provided an extremely low rate of return. The investment assured participants that they wouldn't lose money, but it was far too conservative to be appropriate for long-term retirement saving.

Going beyond the MyRA

Now, the Treasury no longer accepts deposits to MyRAs, and it has automatically closed out accounts when balances reach $0. Existing accountholders can keep their money in their MyRA, but the program's website gives ample information about transferring MyRA assets to other Roth IRA providers -- likely in the hopes that savers will leave and allow the program to close entirely.

The solution now is the same as it was when the MyRA program first started. By finding a financial institution that will let you make equally modest initial and recurring contributions to a full Roth IRA with access to stock mutual funds and ETFs, you can build a much more appropriate retirement portfolio. That does require effort, and many underserved low-income workers inevitably won't do so. The government's unwillingness to go beyond low-yield Treasury investments, however, made MyRAs a deceptive solution to the retirement crisis and arguably doomed the program from the start.

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