January 1, 2015 marks the 40th anniversary of Individual Retirement Accounts (IRAs) in the United States.
Born from the passing of the Employee Retirement Income Security Act (ERISA) of 1974, IRAs were created to protect workers’ earned company retirement benefits and transfer them to their own retirement accounts, thus the name Individual Retirement Accounts. IRAs also provided an alternative for Americans to save on their own rather than depending entirely on company pensions to fund their retirements. With fewer lifetime employees and increasing mismanagement or underfunding of pension plans, IRAs shifted the financial responsibility and the risk from the employer to the employed. IRAs have proven to serve as a vehicle to give Americans more control over their retirement savings and have become the ultimate retirement savings vehicle as many retirement contribution plan funds end up in IRAs as rollovers from 401(k), 403(b), TSP and other company plans.
IRAs have become an integral part of retirement planning. With employer benefit plans, such as pensions, becoming increasingly unreliable, coupled with increasing life expectancies and rising cost of living, IRAs have become a crucial component to help millions of Americans save on their own terms to fund their retirement years.
In the beginning, IRAs allowed savers to contribute up to $1,500 a year. In 1981, the Economic Recovery Tax Act opened up IRAs to any taxpayer under the age of 70 ½ and increased the maximum yearly contribution by $500. Now, according to the Government Accountability Office, 43 million taxpayers have IRAs with a total reported value of more than $5 trillion. The maximum contribution amount for 2015 is $5,500 and $6,500 for account holders age 50 or over.
“IRAs have changed the landscape for retirement savers and retirees alike,” says Ed Slott, the nation’s leading authority on IRAs. “But, as with most laws, there are many intricacies that come with IRAs that only a few financial advisors truly understand. The Elite IRA Advisor Group members not only know how to properly get money into IRAs, but they also know how to get it out without losing an excessive amount in unnecessary taxes, penalties or fees.”
I am a big believer in not only education, but continuous education. As a financial advisor it is critical to stay up to date on current tax law as well as new tax law that could have a huge effect on our client’s well- being. There are huge tax advantages that allow people with IRAs, TSP and other Qualified Retirement Plans to create enormous tax-deferred and tax-free wealth for themselves and their families. That is why I am a member of Ed Slott’s Elite IRA Group, where I receive personal training and ongoing updates from “America’s IRA Experts.” As news breaks and tax rules continually change, members of this group are informed with extensive specialized knowledge, tools and resources to help our clients handle their Retirement Plans as tax-efficiently as possible before, during and after retirement.
As a part of the IRA’s 40th anniversary, I welcome requests for information about how the IRA has changed, common misconceptions about the account, frequently asked questions and the most overlooked planning errors when it comes to IRAs.