Do your eyes glaze over when you see the term IRA? Are you sick and tired of all those ads on tv talking about retirement? I hear ya! These days, retirement – and retirement planning – is the 800 pound gorilla in most people’s homes.
Well, have no fear...let’s take a look at what an IRA is and how they have evolved over time. Once we understand the history, we can move on to other related topics: investing, planning and other retirement ideas.
Basically, an IRA is an “individual retirement plan” provided by many banks and financial institutions that provides tax advantages for retirement savings. In essence, interest and/or earnings grow tax-deferred until the owner withdraws the funds.
The IRA account was introduced in 1974 in the Employee Retirement Income Security Act (ERISA). Taxpayers could contribute up to $1,500 AND deduct the contribution from taxes. If you fast forward to tax year 2013, the annual dollar amount has increased dramatically to $5,500 for those under age 50, and $6,500 for those over 50. Congress is increasingly worried that individuals will not have enough money to live on when they retire, hence the increases in allowable contributions.
I can feel your eyes drooping reading this article… Enough for today! We can move on to the importance of opening an IRA, types of IRAs and investment ideas another day!
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