HISTORY OF THE IRA

 

The Individual Retirement Arrangement (IRA) was introduced in 1974 with the enactment of the Employee Retirement Income Security Act (ERISA).  Taxpayers could contribute up to 15% of their annual income or $1,500, whichever is less, each year and reduce their taxable income by the amount of their contributions. ERISA restricted IRAs to workers who were not covered by a qualified employment-based retirement plan.

 

In 1981, the Economic Recovery Tax Act (ERTA) allowed all working taxpayers under the age of 70 to contribute to an IRA, regardless of their coverage under a qualified plan.  It also allowed participants to contribute $250 on behalf of a nonworking spouse.  These changes became effective with 1982 returns.

 

The Tax Reform Act of 1986 phased out the deduction for IRA contributions among workers covered by an employment-based retirement plan who earned more than $35,000 if single or over $50,000 if married filing jointly, beginning with tax year 1987.  Other taxpayers could still make nondeductible contributions to an IRA.

 

The Small Business Job Protection Act of 1996 increased the limit for contributions for nonworking spouses from $250 to $2,000.

 

The Roth IRA, named after the late Delaware Sen. William Roth, was introduced in the Taxpayer Relief Act of 1997 and became effective for tax year 1998

 

IRA maximum contribution limits have increased over the years.   Contribution limits were indexed for inflation beginning in 2002.

 

$1,500 from 1975-1981 

$2,000 from 1982-2001 

$3,000 from 2002-2004 

$4,000 from 2005-2007 

$5,000 from 2008-2012  

$5,500 from 2013-2018

$6,000 from 2019-2022

$6,500 for 2023

 

Starting in 2002, individuals 50 years old and older were allowed to make additional “catch up” contributions to their traditional IRAs.

 

$   500 from 2002-2005 

$1,000 from 2006-2023

 

TTFN