Legislative History of IRAs

Individual retirement accounts were introduced in 1974 with the enactment of the Employee Retirement Income Security Act (ERISA). As the Congress originally conceived the accounts, participants could contribute up to $1,500 a year and reduce their taxable income by the amount of their contributions. Initially, ERISA restricted IRAs to workers who were not covered by a qualified employment-based retirement plan. But the 1981 Economic Recovery Tax Act allowed all taxpayers under the age of 70½ to contribute to an IRA, regardless of their coverage under a qualified plan. It also raised the maximum annual contribution to $2,000 and allowed participants to contribute $250 on behalf of a nonworking spouse. The Tax Reform Act of 1986 reversed the trend toward expanded participation by phasing out the deduction for IRA contributions among higher-earning workers who are covered by an employment-based retirement plan themselves or who have a covered spouse.

In the 1990s, the Congress raised some of the limits it had previously placed on IRA contributions and also created the Roth IRA--a new type of account that features nondeductible contributions and tax-exempt withdrawals. The Small Business Job Protection Act of 1996 raised the limit on contributions on behalf of nonworking spouses from $250 to $2,000. Further changes came in the Taxpayer Relief Act of 1997. In addition to creating Roth IRAs, it increased the income threshold above which deductible contributions are phased out and distinguished between taxpayers who are covered by an employment-based plan and those who are not but whose spouses are covered. The income thresholds for the latter category of taxpayers are now higher than those for the former, which allows more people who are not covered by an employer's retirement plan to make tax-deductible contributions.

Additional changes to IRAs resulted from the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA). The law raised the limit on contributions beginning in 2002 and allowed "catch-up" contributions by people ages 50 and above. It also provided a nonrefundable credit for certain contributions to an IRA or a 401(k)-type plan. All of EGTRRA's provisions expire after 2010. In 2006, the Congress made it easier for high-income taxpayers to contribute to Roth IRAs.

Table 1 summarizes contribution limits and phaseout ranges by year.

Table 1
Maximum IRA Contributions and Deduction Phase-out Ranges by Year