The Junior IRA: A Great Way to Help Our Children and Bypass the Compassion Pimps and Scum-Sucking Parasites

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For those of you familiar with this blog, you now know that I have added another item to my to-do list in retirement. In addition to picking up litter, baking bread for the needy, and traveling America, I’ll be on a quest to turn every newborn American into a diaper-wearing, Similac-puking Warren Buffet.

Two months ago, I invented the Junior IRA and blogged about it here. And that’s all I was prepared to do. Share my idea with the five people who visit my blog and let it go. But I couldn’t get the Junior IRA out of my head. It just makes too much sense. So rather than let it die in obscurity, I decided to fight for it. That fight began this past Friday with this post.

What I plan to do going forward is blog about the concrete actions I’m taking to promote the Junior IRA. Last Thursday, for instance, I emailed my three representatives in Congress about it. Yes, I know that will amount to jack-squat. But it’s a start. This week my goal is to introduce it to some of my favorite podcasters and see if I can wrangle an interview. I emailed Farnoosh last night. Tonight I’ll email Joshua Sheats over at Radical Personal Finance.

For this post, I want to elaborate on a feature of the Junior IRA that allows people to help children and bypass the compassion pimps and other assorted scum-sucking parasites. But before I do that, I just want to provide a quick description of the Junior IRA for those readers joining the conversation now.

The Junior IRA, or JIRA for short, is just a Roth IRA for children that removes the work requirement and allows anyone to fund it. Here are its key components. (If you’re already familiar with the JIRA basics, you can jump to the Bypassing the Compassion Pimps section below.)

Every newborn in the United States would leave the hospital with a birth certificate and a JIRA.

The federal government and the birth state would each be required to contribute $1,000 to every newborn’s JIRA.

The maximum contribution to a JIRA in the first year of a child’s life would be $3,000 ($2,000 from the government and $1,000 from other sources). The maximum contribution after the first year would be $1,000 annually.

Contributions to a JIRA could come from any source (parents, grandparents, aunts, uncles, charities, foundations, churches, etc.) and could not be used by the contributor for a tax deduction.

As soon as a child turned 18, her JIRA would immediately convert to a Roth IRA.

Bypassing the Compassion Pimps and Scum-Sucking Parasites

For a few years during my government career, I was the foreman of a highway crew. On the typical workday, my crew gave the taxpayers 2-3 hours of moderately stressful effort. We were, to put it kindly, bums. And we knew it. That’s why we all referred to our jobs as high-class welfare.

My point here, of course, is not to point out the obvious. Any half-sentient adult knows that the typical government employee is hardly a shining example of the Protestant work ethic. Check out the trailer below for the movie Zootopia. Disney didn’t staff the DMV with sloths by accident.

No, my point here is to show that giving the government a dollar is very unlikely to get a dollar’s worth of service in return.

Sadly, government isn’t the only operation in town that needs something close to two dollars in order to provide a dollar’s worth of service. I used to give every year to the Wounded Warrior Project. No more. According to Charity Navigator, only 60% of Wounded Warrior’s donations go to our wounded soldiers. That’s a lot of freakin’ overhead.

Now let’s suppose that my Junior IRA is the law of the land. And let’s further suppose that Vanguard has a feature on its website that allows you to fund the JIRAs of needy children in your area. So Mrs. Groovy and I go online and identify four needy children in our area. They are all under five-years-old, and we contribute $250 to each of their JIRAs. How much of our contribution will be sucked up by Vanguard’s overhead? Well, if Vanguard operated with the efficiency of the Wounded Warrior Project or my former employer, $400 would be sucked up by overhead. But thankfully, Vanguard is neither a compassion pimp nor a scum-sucking parasite. The expense ratio for its total stock market index fund (VTSMX) is a minuscule 0.17 percent. This means its overhead will suck up a grand total of $1.70, less than $0.43 from each $250 contribution.

Because Vanguard’s expense ratio for its total stock market index fund is so low, virtually 100% of our gift would make it to the intended beneficiaries. But it’s even better than that. Our gift isn’t just going to sit there and gather dust. It’s going to grow. Assuming a reasonable 7-8% return over the next six decades, our original $1,000 will grow to approximately $64,000. That’s $16,000 per needy child—a 6,400 percent return on our charity.

Final thoughts

What government program or charity returns $64 for every $1 it is given? No charity does. Does any government program? Some might think that education provides comparable returns. But let’s look at the numbers. We are told that those with a college degree earn $1 million more over their lifetimes than their non-degreed counterparts. Assuming a degree costs $50k, and assuming all degrees awarded by state schools are 100% taxpayer financed, that would amount to a 2,000 percent return on the taxpayers’ coerced charity. But the return is much less than that. First, to get the 2,000 percent return, a college graduate has to work—for four decades. Our JIRA beneficiary doesn’t have to lift a finger to get his or her 6,400 percent return. Second, administrators and full-time professors employed by state schools are entitled to pension and retirement health benefits partially funded by the taxpayers. That’s more overhead. There’s no way, then, that the return on $1 invested in higher education (or anything else the government does) will ever come close to matching the return on $1 invested in a needy child’s JIRA.

I’m not trying to stroke my ego here, but my JIRA may well be the greatest vehicle for charity ever conceived.

There you go, groovy freedomists. What do you think? Am I nuts? Do you see any flaws in my reasoning? I welcome your thoughts and criticisms.


Junior IRA Resources

The Junior IRA in a Nutshell

Posts

DateTitle
12/28/2015Congress Should Create the Junior IRA
2/19/2016Here Rests the Inventor of the Junior IRA
2/23/2016The Junior IRA: A Great Way to Help Our Children

Actions

DateActionResultComments
2/18/2016Emailed Congressman Richard Hudson about JIRA
2/18/2016Emailed Senator Richard Burr about the JIRA
2/18/2016Emailed Senator Thom Tillis about the JIRA
2/21/2016Emailed Farnoosh Torabi about JIRA. Goal is to get on her So Money podcast to promote JIRA.

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6 Comments

  1. I think people in the personal finance sphere tend to be really, really friendly. Some blogging communities tend to be really catty, but PF man these are some of the nicest people on the inter-webs.

    I think you have a good chance on getting those people for interviews!

    Anyway, I think a better option than JRA is government setting aside a portion of each paycheck for you in a private retirement account as soon as you start working. Awhile ago I read that Singapore does this,

    https://en.wikipedia.org/wiki/Central_Provident_Fund

    My step-dad said that when he was working back in the 50s and 60s and 70s that Alaska would set aside a portion of their paychecks into retirement. He ended up with a sweet retirement, but he was always good with his money and worked his way up as a marketing executive.

    Basically fortune smiled on him as she did with you! =)

    • Mr. Groovy

      Hey, Jaime. You are so right about the PF community. They’re a very gracious lot. Hopefully, Farnoosh and Joshua will smile upon me. Didn’t know about Singapore. Thanks for the link. I believe Chile also has a system that requires workers to put a certain percentage of their incomes into private retirement accounts. What I like about private accounts is that they can have beneficiaries. I don’t want to get all ghoulish here, but what would happen if Mrs. Groovy and I died before we were eligible for Social Security? Where would all the money we contributed go? Social Security worked exceptionally well when America was the undisputed center of the industrial world and people died in their 60s. That world is gone. We have to adjust. Junior IRAs, coerced savings (euphemistically called “nudging”), perhaps the feds providing a match for low-wage workers who set up IRAs for themselves–something’s gotta change. Thanks for sharing. I love it when readers, especially young readers, contribute worthwhile ideas.

  2. Please make sure to add a footnote that the government contribution (not my favorite feature, given our government has no money) canNOT be withdrawn until retirement age. Even with a hefty 30% penalty, you know a lot of idiots (including parents) will squander free money. Just a footnote/clause in your final MrGroovy JIRA Act to Congress.

    • Mr. Groovy

      Agreed, Mr. FS. Mrs. Groovy and I were thinking the same thing. Withdrawals from a JIRA-derived Roth wouldn’t be permissible until the account’s owner turned at least fifty-nine and a half. I also think JIRA-derived Roths should have very constrained investment options–a total US stock market index fund, a total US bond market index fund, a total international stock market index fund, and a money market account. That’s it. There would also be a minimum bond allocation based on age. Within a year after turning 40, for example, you would need at least 20 percent of your JIRA-derived Roth portfolio in a bond index fund. At 50, you would need at least 30 percent. At 60, you would need at least 40 percent. These changes should make the JIRA fairly idiot-proof.

    • Thanks, MM. I’m doing a follow-up post soon. Probably next week. The Junior IRA would be great. But I don’t think Congress will move on it any time soon. I do, however, have a nice work-around for any parents wishing to start an IRA for their children. The plot thickens.

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