IRAs in the Spotlight

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Individual Retirement Accounts hit the stage in 1974. After edits by six government acts over the ensuing years, these troupers are still going strong today. Here’s a look at the playbill.

SCENE 1 opened the show with the passage of the Employee Retirement Income Security Act, and starred the traditional IRA. Workers could contribute up to $1,500 per year and claim a tax deduction for the contribution. Only employees without a retirement plan could participate.

SCENE 2 presented the Economic Recovery Tax Act of 1981, which upped the maximum annual contribution and allowed an additional contribution of $250 for nonworking spouses. All taxpayers under the age of 70-1/2 could fund an IRA whether they had an employer retirement plan or not.

SCENE 3 introduced the Tax Reform Act of 1986. At this point, the curtain came down on IRA deductions for highly paid workers, if they or their employed spouses were covered by an employer based retirement plan.

SCENE 4 headlined the Small Business Job Protection Act of 1996, which increased the nonworking spousal contribution limit to $2,000.

SCENE 5 featured the Taxpayer Relief Act of 1997 and the Roth IRA. Employees could make contributions to the new Roth accounts from already-taxed income, foregoing a current tax deduction in exchange for later, tax-free withdrawals. Income limits on traditional and Roth IRAs went up.

SCENE 6 highlighted the Economic Growth and Tax Relief Reconciliation Act of 2001 and added a catch-up provision for those over age 50, plus a nonrefundable federal income credit for certain contributions.

SCENE 7 gained applause with the Tax Increase Prevention and Reconciliation Act of 2005. This star jacked up contribution limits and allowed high income owners of traditional IRAs to convert to Roth accounts, starting in 2010.

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