Hey everyone, Wanda Shawn here from West Trust Company. Today, we’re diving into the fascinating history of Individual Retirement Accounts (IRAs). We’ll cover the major dates, deadlines, and the acts that shaped these accounts, enabling us to benefit from them today.
Disclaimer
Before we start, please note that we do not provide tax, legal, or investment advice. I’m not a CPA or financial advisor, just an IRA specialist here to educate you. Always consult a CPA or financial advisor before making any decisions.
Employment Retirement Income Security Act of 1974
The Employment Retirement Income Security Act (ERISA) of 1974 created the traditional IRA. This is the IRA most people use to roll over old employer plans. It allows for pre-tax contributions and grows tax-deferred. When it started, the contribution limit was $1,500. Today, it’s $5,500, reflecting inflation and other changes.
Revenue Act of 1978
This act created the SEP IRA, a simplified employee pension plan. A SEP IRA is essentially a traditional IRA but designed for self-employed individuals, allowing for higher contributions—up to 25% of your annual income.
Tax Reform Act of 1986
This act introduced income limits for the deductibility of traditional IRA contributions for those covered by employer-sponsored plans. If you earn above a certain threshold, you can’t take a tax deduction for your contributions.
Unemployment Compensation Amendment of 1992
This amendment allowed for direct rollovers from employer plans to IRAs. For example, you can roll over your 401(k), 403(b), or other employer retirement plans into a traditional IRA.
Taxpayer Relief Act of 1997
The Taxpayer Relief Act of 1997 gave us the Roth IRA. Unlike a traditional IRA, contributions to a Roth IRA are post-tax, but the growth and withdrawals are tax-free. This act also introduced the Coverdell Education Savings Account, which allows for tax-free growth if used for qualifying educational expenses.
Economic Growth and Tax Relief Reconciliation Act of 2001
This act introduced catch-up contributions for those over 50. For traditional and Roth IRAs, the catch-up contribution is $1,000, allowing you to save more as you near retirement.
Tax Increase Prevention and Reconciliation Act of 2005
This act removed the income threshold for Roth IRA conversions, making it possible for anyone to convert a traditional IRA into a Roth IRA, regardless of income.
Pension Protection Act of 2006
This act allowed rollovers from qualified plans to Roth IRAs, giving more flexibility in managing retirement funds.
American Taxpayer Relief Act of 2012
This act extended the qualified charitable distribution provision, allowing tax-free transfers directly from IRAs to charities under certain conditions.
Consolidated Appropriations Act of 2016
This act allowed rollovers into Simple IRAs after a two-year requirement and made the qualified charitable distributions permanent.
Tax Cuts and Jobs Act of 2017
This act repealed the ability to recharacterize Roth IRA conversions starting in 2018. Once you convert from a traditional IRA to a Roth IRA, it’s permanent no more changing your mind.
Important Dates to Remember
- January 31: Deadline to file a 1099-R.
- March 15: Tax day for corporate entities.
- April 1: Deadline to satisfy your first RMD if you turned 70.5 last year.
- April 15: Tax filing deadline for contributions to Roth, traditional, HSA, and ESA accounts.
- May 31: Deadline to send out Form 5498.
- September 15: Last day for corporate extension filings.
- October 1: Deadline to set up a Simple IRA.
- October 15: Last day for non-corporate extension filings and for removing excess contributions.
- December 1: HSA setup deadline.
- December 31: 401(k) setup deadline and last day to satisfy RMDs for the current tax year.
About Quest Trust
At Quest Trust, we specialize in self-directed IRAs holding non-traditional assets like private companies, promissory notes, and real estate. We offer free education for clients and non-clients alike. If you have any questions, feel free to reach out to me or any of our IRA specialists.
Closing Remarks
Understanding the history and evolution of Individual Retirement Accounts (IRAs) helps us appreciate the opportunities and benefits they provide today. From the inception of traditional IRAs under the Employment Retirement Income Security Act of 1974 to the more recent changes under the Tax Cuts and Jobs Act of 2017, each legislative act has shaped how we can save for retirement. Whether you’re just starting to save or looking to optimize your existing retirement strategy, staying informed about these key milestones can empower you to make the best decisions for your financial future.
Always remember to consult with a CPA or financial advisor to tailor your retirement plan to your specific needs and goals. At Quest Trust, we’re here to support you with expert guidance and free educational resources on self-directed IRAs and non-traditional assets. Thank you for joining us on this journey through the history of IRAs.
Hey everyone, Wanda Shawn here from West Trust Company. Today, we’re diving into the fascinating history of Individual Retirement Accounts (IRAs). We’ll cover the major dates, deadlines, and the acts that shaped these accounts, enabling us to benefit from them today.
Disclaimer
Before we start, please note that we do not provide tax, legal, or investment advice. I’m not a CPA or financial advisor, just an IRA specialist here to educate you. Always consult a CPA or financial advisor before making any decisions.
Employment Retirement Income Security Act of 1974
The Employment Retirement Income Security Act (ERISA) of 1974 created the traditional IRA. This is the IRA most people use to roll over old employer plans. It allows for pre-tax contributions and grows tax-deferred. When it started, the contribution limit was $1,500. Today, it’s $5,500, reflecting inflation and other changes.
Revenue Act of 1978
This act created the SEP IRA, a simplified employee pension plan. A SEP IRA is essentially a traditional IRA but designed for self-employed individuals, allowing for higher contributions—up to 25% of your annual income.
This act introduced income limits for the deductibility of traditional IRA contributions for those covered by employer-sponsored plans. If you earn above a certain threshold, you can’t take a tax deduction for your contributions.
Unemployment Compensation Amendment of 1992
This amendment allowed for direct rollovers from employer plans to IRAs. For example, you can roll over your 401(k), 403(b), or other employer retirement plans into a traditional IRA.
Taxpayer Relief Act of 1997
The Taxpayer Relief Act of 1997 gave us the Roth IRA. Unlike a traditional IRA, contributions to a Roth IRA are post-tax, but the growth and withdrawals are tax-free. This act also introduced the Coverdell Education Savings Account, which allows for tax-free growth if used for qualifying educational expenses.
Economic Growth and Tax Relief Reconciliation Act of 2001
This act introduced catch-up contributions for those over 50. For traditional and Roth IRAs, the catch-up contribution is $1,000, allowing you to save more as you near retirement.
Tax Increase Prevention and Reconciliation Act of 2005
This act removed the income threshold for Roth IRA conversions, making it possible for anyone to convert a traditional IRA into a Roth IRA, regardless of income.
Pension Protection Act of 2006
This act allowed rollovers from qualified plans to Roth IRAs, giving more flexibility in managing retirement funds.
American Taxpayer Relief Act of 2012
This act extended the qualified charitable distribution provision, allowing tax-free transfers directly from IRAs to charities under certain conditions.
Consolidated Appropriations Act of 2016
This act allowed rollovers into Simple IRAs after a two-year requirement and made the qualified charitable distributions permanent.
Tax Cuts and Jobs Act of 2017
This act repealed the ability to recharacterize Roth IRA conversions starting in 2018. Once you convert from a traditional IRA to a Roth IRA, it’s permanent no more changing your mind.
Important Dates to Remember
- January 31: Deadline to file a 1099-R.
- March 15: Tax day for corporate entities.
- April 1: Deadline to satisfy your first RMD if you turned 70.5 last year.
- April 15: Tax filing deadline for contributions to Roth, traditional, HSA, and ESA accounts.
- May 31: Deadline to send out Form 5498.
- September 15: Last day for corporate extension filings.
- October 1: Deadline to set up a Simple IRA.
- October 15: Last day for non-corporate extension filings and for removing excess contributions.
- December 1: HSA setup deadline.
- December 31: 401(k) setup deadline and last day to satisfy RMDs for the current tax year.
About Quest Trust
At Quest Trust, we specialize in self-directed IRAs holding non-traditional assets like private companies, promissory notes, and real estate. We offer free education for clients and non-clients alike. If you have any questions, feel free to reach out to me or any of our IRA specialists.
Understanding the history and evolution of Individual Retirement Accounts (IRAs) helps us appreciate the opportunities and benefits they provide today. From the inception of traditional IRAs under the Employment Retirement Income Security Act of 1974 to the more recent changes under the Tax Cuts and Jobs Act of 2017, each legislative act has shaped how we can save for retirement. Whether you’re just starting to save or looking to optimize your existing retirement strategy, staying informed about these key milestones can empower you to make the best decisions for your financial future.
Always remember to consult with a CPA or financial advisor to tailor your retirement plan to your specific needs and goals. At Quest Trust, we’re here to support you with expert guidance and free educational resources on self-directed IRAs and non-traditional assets. Thank you for joining us on this journey through the history of IRAs.
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