Understanding IRAs and Retirement Plans / Tax-Saving Strategies
History of IRAs:
Employee Retirement Income Security Act of 1974 (ERISA):
- Federal law establishing standards for private pension plans.
- Did not require employers to have pension plans, but enforces rules for those that do.
- Studebaker went out of business in the late ‘60s and couldn’t pay their employee pensions because they weren’t funded adequately.
- Taxpayers could contribute up to $1,500 per year and reduce taxable income by the amount of the contributions.
Economic Recovery Tax Act 1981 (ERTA):
- Under ERISA, IRAs were restricted to those workers who were not already covered by a qualified employment-based retirement plan.
- Under ERTA, all taxpayers who were age 70½ or younger could contribute to an IRA.
- Taxpayers could contribute up to $2,000 to their own IRA and $250 for a nonworking spouse and receive a tax deduction.
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