# Applicability of the New "MyRA" Savings Account to U.S. Expats



## BBCWatcher

President Obama announced in last night's (2014's) State of the Union speech that he'll be signing an executive order introducing a new "MyRA" savings program. The U.S. Treasury has the authority to introduce new savings bonds, and the MyRA program is apparently consistent with that preexisting authority. I'm always on the lookout for tax and other financial changes that could potentially benefit Americans living overseas since I am one. Below I'll explain how the MyRA program applies to U.S. nationals living overseas. If you want the short answer, though, it's this: MyRA accounts won't hurt anybody living overseas (or anybody else for that matter), but they'll be of very limited benefit.

The Wall Street Journal has a preview explaining these new accounts. If you're a U.S. national working overseas, MyRA _might_ be useful if all of the following conditions are true:

1. You work for a U.S. employer and are paid on U.S. payroll.
2. Your U.S. employer does not offer a 401(k) or other, similar tax-advantaged retirement savings program.
3. Your employer chooses to participate in the MyRA program starting as early as late 2014.
4. You earn less than $191,000 per year.
5. You are willing to making an initial investment of at least $25 and recurring investments of at least $5.
6. You want to allocate these savings to U.S. government bonds.
7. Presumably, speculatively, you have earned income above the FEIE/FHE limit (but less than $191,000 per year), or you live in a comparatively high tax jurisdiction and thus do not take the FEIE/FHE. (But we don't know yet for sure if this part will be more IRA-like or more 401k-like, so watch this one.)

I have to imagine most Americans living overseas won't meet all of these requirements. That's a very tough set of qualification requirements if you're living overseas.

If you participate, Treasury will invest your MyRA funds into the same bonds as the U.S. federal workers' Thrift Savings Plan Government Securities Investment Fund. You can never lose principal -- the government guarantees that. And the fund's variable yields should be substantially better than, say, bank checking and savings accounts. But they'll be government bond yields, currently in the low single digit percentages. The interest you earn is tax free (like a Roth IRA). Interestingly, according to the Wall Street Journal, you will be able to withdraw MyRA funds at any time without penalty quite unlike Roth IRAs. So actually a MyRA account, despite its name, could be a decent deal to save for, say, a down payment on a home, a new washing machine, or some other large future purchase, assuming the WSJ is correct.

Your contributions to your MyRA account will be processed by participating employers as payroll deductions. The President and Treasury want employers to automatically enroll their employees (though still allowing them to disenroll if they choose at any time, or to adjust their contribution levels), but _requiring_ employers to auto enroll their employees would seemingly require Congressional action which presumably is not likely in the near term. Lots of employers with 401(k) plans have started auto enrolling employees, so there seems to be reasonable willingness among at least those employers to do so voluntarily.

You'll be able to carry your MyRA account with you when you change jobs. You can roll a MyRA account into a private IRA (presumably a Roth IRA) at any time, and you must roll a MyRA account into a private IRA once the account balance hits $15,000. I have to imagine that $15K cap is a sop to the big, politically powerful financial sector interests that like IRAs just as they are, with the commissions and fees they collect.

Note that you cannot contribute to a MyRA account without earned income, specifically U.S. paid earned income from a U.S. employer without a 401(k) (or similar) plan. And I assume FEIE/FHE-excluded income doesn't count, though we'll have to see.

I assume that MyRA contributions will count against annual IRA contribution limits (currently $5,500 per person under age 50), though the WSJ didn't clarify that point.

I think it's fair to say that any MyRA account benefits for Americans living overseas will be rather "accidental." This program does not appear to be "expat aware," and that's not a surprise. It also provides zero benefit, assuming the WSJ is correct, to disabled Americans and unemployed Americans because of the earned income requirement. In short, MyRA accounts are by no means a complete solution for the breakdown in the U.S. retirement savings system with the almost total collapse of private defined benefit pensions in particular. But given Congressional (specifically House) inaction to address that problem, MyRA accounts are probably the best that can be done with an executive order.

The President urged Congress (read: the House) to act, in particular to reorient the tax code to provide the biggest incentives to save for retirement to those in lower income levels. Right now it's the opposite: the more you earn, the bigger your tax benefits for retirement savings. So the tax code is really encouraging a lot of savings behavior that would occur even without the tax incentives, and under-incenting those with lower incomes who really are facing the biggest financial problems in their retirement years.

To which I would add that it's even worse for Americans living overseas. The FEIE/FHE is nice, but taking those exclusions wipes out the ability of lower and moderate Americans living overseas to contribute to IRAs. Plus many/most overseas Americans aren't on U.S. payroll, so they can't contribute to 401(k)s at all. It's much, much harder to qualify for tax-advantaged retirement savings vehicles if you live outside the U.S., most especially if you're low or moderate income. I think that's a problem, but it'll require Congress (including the House) to fix it.

The above information is very preliminary. We'll have to wait to see more information about the MyRA accounts to fully understand all the rules.


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## Bevdeforges

Frankly, the first requirement will probably put 75 to 80% of overseas Americans out of the running.
Cheers,
Bev


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## maz57

If Obama and Congress really wanted to help expats save for retirement (they don't) they would simply instruct the IRS to allow expats to invest in the tax-advantaged accounts offered in their country of residence without turning it into a taxing and reporting nightmare. 

The clash of the US tax code with other country tax codes caused by CBT continues to be the main problem faced by expats.


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## BBCWatcher

I've seen some subsequent reporting that suggests that the MyRA accounts are an attempt both to spur more Americans to open (and to contribute) to IRAs -- through the auto-enrollment mechanism in particular -- and to provide lower opening and ongoing contribution minimums, lower than private custody IRAs. The idea here is that more workers can build up to a ~$1,000 minimum (for example), then roll that into an private IRA and continue contributing.

The big problem, though, is, quite simply, that IRAs and 401(k)s have been pretty much a disaster. More precisely, IRAs work well for people who would be able to save for retirement anyway without the tax breaks, and they work very badly for many (lower and middle income) Americans who must drain them prematurely, usually with penalties, due to job loss, medical misfortunes, disabilities, legal troubles, and so on. IRAs and 401(k)s were always intended to be supplementary savings programs, not primary. They were one leg of the three legged stool. The other two are Social Security and defined benefit employer pensions. So MyRAs might help make it a bit easier to get an IRA going because you can start with $25 instead of $1000 or more. But IRAs themselves aren't working as a system, fundamentally, especially for the lower and middle income Americans that would the most likely to use the MyRA accounts.

Yes, the President did talk about this problem to some extent in his speech, though I don't think even his Congressional proposals are enough to solve this big problem.

I think my preferred remedy would be something like "Social Security Part B." Every U.S. citizen (working or not) would be able to contribute monthly to a Social Security Administration-managed "Part B" fund. Every couple years the fund would go out to bid in the annuity market to get the best deal from annuity underwriters, subject to risk standards. The annuities would pay a monthly benefit starting at age 60 and continuing for life, indexed to inflation (CPI-E). (I wouldn't make the benefit side any more complicated than that.) If you couldn't contribute (i.e. because you have no income) the government would kick in a minimum purchase amount for you. That purchase amount would be phased out gradually as your income rises. Yes, overseas Americans could participate without impediment. You could contribute up to $1,500 per month (indexed to inflation), or approximately what the 401(k) annual contribution cap is today. There'd be auto-enrollment at work, though you could modify or cancel your enrollment. "Classic" Social Security would remain in place as Social Security Part A, albeit with the current taxable maximum lifted (and extended to unearned income), perhaps with a rate reduction if the math works.

How would Social Security Part B be funded? Simple. By getting rid of the current tax-advantaged savings vehicles. That's work. Though you have to be reasonable in handling the transition.

Anyway, something very much like a "Part B" approach would be my preference, and it'd go a very long way to addressing the needs of overseas Americans, too.


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## Bevdeforges

I don't get the feeling that any of this is intended for overseas residents. Just the requirement that you be on a US payroll of a US employer kills it for most overseas residents. Those of us who live overseas on a long-term basis tend to work on the local payroll and take advantage of local savings instruments. 

Frankly, what I'd like to see is for them to make the IRAs and 401Ks work like most retirement savings plans do elsewhere. When you retire, the balance in your account is converted to an annuity payment of X per month for the rest of your life (or the joint lives of married couples). Period. None of this playing around with "leaving money in the retirement fund to the kids." 
Cheers,
Bev


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## maz57

"I don't get the feeling that any of this is intended for overseas residents. Just the requirement that you be on a US payroll of a US employer kills it for most overseas residents. Those of us who live overseas on a long-term basis tend to work on the local payroll and take advantage of local savings instruments." 

Of course it's not. The rule makers in Washington can't see beyond the borders or imagine living in another country. Which would be OK-- until it's combined with CBT and turned into a malevolent force.


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## Bevdeforges

One interesting thing, however, is that in the Bilateral Agreements I have read on the FATCA reporting, both the French and UK versions spell out in appendices certain types of savings/investment accounts that the local banks do NOT have to report. Generally these are the local "tax free interest" and "retirement" accounts.

Makes me wonder how enforceable the new rules are going to be for these types of investments if the IRS is specifically excluding them from reporting by the foreign banks.
Cheers,
Bev


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## maz57

There are many here in Canada who believe one of the "sticking points" in working out the terms of a Canada/US IGA is that Canada is insisting on additional carve outs for all of the Canadian government registered/tax free accounts. The IRS has insisted for years that such accounts were taxable in the US. To date, only the RRSP has been allowed such status and only then with extra (totally useless) reporting.

In general the IRS intensely dislikes tax deferral and if it is "foreign" regards it with even more suspicion. In many countries tax deferral is a cornerstone of individual retirement planning and the IRS's stubborn refusal to recognize these plans has made retirement planning very difficult for US persons. If Canada is successful in getting IRS recognition, then the reporting of them would be pointless as well.

There is still no word out of the Canadian government on the progress of these negotiations, but the public is starting to wake up to the scope of the attempted FATCA overreach by the US. There have been some major media articles about FATCA and Canadians are not happy about it. It's turned the issue into a signifcant problem for the current government. The time for flying under the radar has passed and the government knows it.


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## Bevdeforges

Interesting to hear you say that, maz, as I've been skimming through some of the other IGAs. Clearly, in the UK and French ones, they have carved out most of the standard tax free retirement accounts (and here in France, also the standard, limited balance freebie savings accounts). 

It almost makes it sound like the IRS considers Canada to be a US "protectorate" or something like that. Yes, it would infuriate me, too, I think.
Cheers,
Bev


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## Nononymous

FATCA news from north of the border: Is Ottawa stalling on FATCA tax crackdown because U.S. isn’t ready? - National | Globalnews.ca


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## maz57

The long standing tax treaty between Canada and the US states that the CRA (the Canadian equivalent of the IRS) will not enforce an IRS tax claim on a Canadian citizen resident in Canada if the taxpayer was a Canadian at the time the liability arose. The reverse is also true; the US will not enforce a claim on a US taxpayer resident in the US if they somehow incurred a Canadian tax claim while they were a US citizen.

The Minister of Finance has repeated this publicly on numerous occasions. Additionally, he has stated that penalties such as an FBAR fine would also be uncollectable because they are a mere filing requirement and are outside the scope of the tax agreement.

There is zero chance the Canadian government will sign an IGA which strips away these treaty provisions. So the message to the US government is "pass all the laws you want but don't expect us to help you enforce them in Canada". The CRA is the ONLY taxing authority in Canada; that's not going to change. I have a hunch the Canadian government is holding out for a massive carve out for Canadian citizens. What would be the point of all that reporting on Canadians who also happen to have some sort of "US personhood" if there will never be a mechanism for collection?

The US Treasury department (and it's IRS) have no authority to alter the terms of a binding tax treaty. Only Congress has that authority. Every day that an IGA fails to materialize puts FATCA in Canada on shakier ground.

If and when the negotiators reach some agreement it then must go before Parliament for discussion and debate. It's guaranteed to be controversial and who knows what the timeline might be or if it would even survive?


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## Nononymous

Isn't FATCA simply about reporting account and balance information for financial accounts held by US persons outside of the US? Whatever US citizens residing outside the US are required to do in terms of filing US taxes is another matter, and has not changed due to FATCA.

Of course if FATCA allows the US to identify and contact US persons abroad - are banks required to reveal addresses along with names? - then non-compliant US persons could be notified of their tax filing obligations. But in theory FATCA should not change the US inability to collect fines or penalties from Canadian citizens residing in Canada, should it?


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## Bevdeforges

FBAR is strictly a reporting thing. FATCA is a reporting requirement for "Foreign Financial Institutions" that feeds into a bunch of new forms to be filed with a regular 1040 by individuals. In essence, there is a sort of 1099 filing requirement for the foreign banks that includes name, address and social security number for interest earned on accounts held by "US persons." 

Take a look at any of the Bilateral agreements (none so far with Canada, but any of the others will do) to get a feel for what they're trying to do here. The one saving grace is the exclusion for local banks (including credit unions) and the exemption of certain types of interest free accounts and retirement plans from the required reporting.
Cheers,
Bev


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## FFMralph

Why don't they just raise the intrest rates. That way my retirement savings won't keep depriciating. I already have retirement plans but the savings won't be worth anything when I retire.


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## BBCWatcher

FFMralph said:


> Why don't they just raise the intrest rates.


Because that would raise borrowing costs, depressing consumer spending and what little investment in plant and equipment (and in other factors of production and in capital goods) is occurring, further depressing employment and standards of living. It might also cause disinflation or deflation with even more of those same effects -- the Eurozone in particular is perilously close -- from which it's extremely difficult to escape.

And on top of all that, how can you be suffering _depreciation_ of your retirement savings? That'd mean you've simply mismanaged your savings. Equity markets in particular are roaring, at least in the U.S. Investors having been doing really well over the past few years. Even heavy bond investors have been doing just fine.


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## FFMralph

Equity markets are roaring because investors are not earning intrests from lending their assets. This creates a false interpretation of a booming stock market and economy. 

You are right though, there is money to be made between market crashes. But if you are smart, you do not invest your entire savings in the market. The money in your account depriciates. 

Not only that money, but retirement accounts and life insurances are currently depriciating.
OppenheimerFundsVoice: Will Low Interest Rates Delay Retirement For Boomers And Gen-Xers? - Forbes

But, we are off subject now, aren't we?


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## BBCWatcher

_Depreciates_? That requires a decline in real value. And that hasn't happened unless, quite simply, you've mismanaged your savings. There are even zero risk investments that _cannot_ depreciate, for example U.S. I Bonds.

If you mean that stuffing your dollars (or euro, or yen, or whatever) under a mattress has caused them to depreciate, well sure, although they've depreciated more slowly in recent years because inflation is low (to say the least). Nothing short of deflation would help that investment "strategy" avoid depreciation. And deflation would be really, really bad.

Why should government policy be geared toward assuring you a particular real rate of return for a particular set of (possibly badly chosen) passive investments anyway?

I do hear this complaint among certain hedge fund managers that made big (and risky) bets that there would be high U.S. dollar inflation. Yes, those bets depreciated. Rightly so. They gambled and lost.


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## maz57

Well, there's nothing the matter with having SOME cash, whether it's in a low to no interest account or stuffed under the mattress. The percentage of one's total worth that would be advisable to have in cash at any given time can vary considerably. If the markets are tanking, it might be a good idea to pull the pin and have a lot of cash. On the other hand, if the markets are soaring, it's probably a good idea to be almost fully invested. 

Actually, if you look at the holdings of many mutual funds the last few years, I've seen some that are as much as 50% cash. Why anyone would pay the hefty management fees for someone to manage cash baffles me, but that's exactly what a lot of investors are doing without even knowing it. 

Of course, cash under the mattress (or in a safety deposit box) is FATCA proof, but nobody here cares about that, right? The inflation that was supposed to happen but hasn't materialized yet didn't just burn the hedge fund guys; the gold bugs have gotten hammered as well.

I think all this quantitative easing has just managed to keep the economy plodding along in a slightly positive direction, so slight that inflation has been very low. God help us if it slips enough to become a deflationary environment. Then you WOULD get a real return on cash and that would be a very bad thing.


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## Bevdeforges

Equity markets may be booming (or perhaps, ballooning again) now, but talk to anyone who was planning on retiring in 2009 just after the mortgage fiasco. My IRA is only very recently back up to where it was before everything crashed. (And, like many folks, I simply don't have the time nor the interest in making the sorts of investment decisions on a day to day basis that are necessary to avoid dealing with mutual funds and investment funds.)

The other risk for expats in having retirement funds based Stateside is that of currency exchange. There have been a couple of waves of exchange rate fluctuation here in France that sent expats (US and others) fleeing back home because the value of their pensions collapsed. You can't say that the value of the dollar will never decline, because they also used to say that you couldn't lose money in real estate, too, and see where that got us!

No, this new MyRA thing was not conceived with expats in mind (no big surprise there) and probably won't be of interest to any but a very few who are only temporarily expatriated. 

I'm still very curious to see what comes of these Bilateral Agreements that are specifically exempting certain types of local tax-advantaged savings and retirement plans from the bank reporting requirements. One can only hope that those same accounts would be exempted from personal reporting, too (though I'm not holding my breath on that one).
Cheers,
Bev


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## maz57

@ Bev. The relentless, steady demise of the company defined-benefit pension plan over the last couple of decades has forced many people of modest income to become independent investors. Where they were once part of the "group" with professional management they now have to fend for themselves.

Most of these folks (such as yourself, apparently) don't have the time or the temperament to become expert investors. The investment industry has not been kind to them with high fees and lackluster performance. Wealthier folks, on the other hand, have always been able to take advantage of top level management. 

So it sounds like these MyRAs are an attempt to address this shortcoming. That is a laudable goal; only time will tell how it works out in practice. 

If the US government had a shred of compassion for long-term expats, it would simply let them take advantage of the tax-advantaged investment vehicles available in their country of residence. (Well actually, ditch CBT entirely, but that's too much to hope for.) Instead, the USG punishes us with foreign trust reporting, PFIC rules, taxing everything, etc, etc, etc. All for trying to be prudent and provide for our own future. And, yeah, I've been burnt by exchange rate fluctuations, turning a good investment into a loser.

This sorry state of affairs is what ultimately led me to shed US citizenship.


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## maz57

I forgot to mention that the toughest investment lesson of all for me to learn was at what point should I admit that I had made a mistake, sell, and cut my losses. This was true for investment firms as well as individual securities. (I've "fired" a few advisers over the years!) It's a constant process of monitoring, evaluation, and assessment. 

In the end, getting rid of US citizenship was a business decision. Being a US citizen was seriously harming my ability to manage my financial life. I decided it was time to "sell" the loser and move on.


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## Bevdeforges

To be honest about it, the US Government doesn't give a rat's backside about US expats. Programs like MyRA (or even the original IRA) and similar accounts were done for the domestic audience, with only a rather vague notion of how it might affect (or look to) the overseas Americans. 

I appreciate that you made a business decision in shedding your US nationality. And I agree whole heartedly that the US government should allow us expats to make use of local retirement investment vehicles in our countries of residence/nationality. I take some (small) hope in the exemption of such accounts from the various FATCA international agreements. Because, if the foreign banks and other financial institutions aren't required to report such accounts, then what's to prevent overseas taxpayers from simply dropping them from their returns?
Cheers,
Bev


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