Dr. Mike Walden, NCSU COLLEGE OF AG & LIFE SCIENCES, 3/4/14
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Host Mary Walden asks about a savings account called My RA that President
Obama proposed in his State of the Union Address. Her husband, N.C. State
University economist Mike Walden answers the question: What is it and how is it
different from existing savings accounts?”
Mike Walden: “Well, I think the President was motivated by the fact that new
data show that over half of households are really not saving for their retirement.
So, this is a new vehicle that I think is targeted toward low income and middle
income people who don’t have big bucks to save. So this is a program that will
allow someone, for example, to open up a savings account for as little as $25
and to regularly contribute as little as $5. They’ll be able to do that
through payroll deduction. There will be tax benefits in the sense that the
interest earned will accumulate tax free, although you’ll pay taxes on the
initial contribution.
“Now, these vehicles will really be targeted to motivating people to save
for retirement, although people can withdraw the money at any time. But if they
do that, they’re going to be hit with a penalty and possibly taxes. Now, one
disadvantage that some have noted is that the investments that these monies can
go into will be limited, at least initially, to no risk government bonds.
“Now the advantage to that is there’s no risk. The disadvantage is right now
these accounts pay a very, very low interest rate. Now, one question still has
to be answered — one reason why banks and other financial institutions cannot
offer these accounts is they’re very costly. The administrative costs are very
high.
“And so one question is, how will that be handled? Who will pay those
administrative costs? But other than that, this will be a vehicle hopefully
that will motivate people who aren’t saving now to take a second look and save
for retirement.”