History of IRA
If your company does not offer a retirement plan, you can accumulate a retirement income by investing in your own retirement plan. These plans are the IRA and Roth IRAs . IRA plans were started in 1975, where employees without a retirement plan were allowed to place $2000 into a retirement funds . The contribution was not taxed, however when the balance was distributed at retirement, it was subject to taxation. The IRAs could be started by anyone who earned a salary.
However, in 1986, a new problem was created with the Tax Reform Act , which took out the privilege of a before-tax IRA. This gave those with an IRA less money. The only exception to the pre-tax restriction was if one's income was lower than a certain level. However, in 1997, the Tax Relief Act was passed. This new act created the Roth IRA. The name comes from Senator William Roth, who sponsored the act. With Roth IRAs, you can make higher contributions than with traditional IRAs. Your money is taxed when you put money into the Roth IRA account, allowing for tax-free withdrawals. You can invest in both traditional IRA and Roth IRA accounts.