Happy 50th Birthday, Traditional IRAs: A Look Back at a Half-Century of Retirement Savings
By Jodie Norquist, CIP, CHSP
Are IRAs almost ready for retirement? At 50 years old, these savings tools might not be drawing Social Security yet, but these Generation X’ers have certainly earned their spot as a cornerstone of retirement planning. Traditional Individual Retirement Accounts, better known as IRAs, were created by the Employee Retirement Income Security Act of 1974 (ERISA) and have revolutionized how Americans save for their golden years. They became available on January 1, 1975.
But why were these tax-advantaged accounts created, and why do we remain fond of IRAs?
The Birth of IRAs
In the early 1970s, concerns were growing about the availability and stability of pensions, and the extent to which the average worker could depend on their employer to make a meaningful contribution to their retirement security. 401(k) plans funded primarily with a worker’s own income did not yet exist. Only some employees had access to employer-funded money purchase or profit sharing plans. At the time, traditional defined benefit pensions—retirement plans providing lifetime income, and funded primarily by employers—were the norm. But companies began to scale back on these plans, more and more placing the burden for retirement security on workers. Against this backdrop, Congress stepped in to create a new way for individuals to take control of saving for their retirement.
Back then, the IRA rules were simple. Individuals who were not covered by a company pension plan could contribute up to 15 percent of their pay or a maximum of $1,500 a year to their IRA, claim a tax deduction for the contribution on their individual income tax return, and those contributions would grow tax-deferred until they were withdrawn during retirement. ERISA also created a 10 percent penalty tax on withdrawals before age 59½ to encourage savers to keep the money in their IRAs until retirement.
IRAs Became More Accessible to Americans
In the 1980s, there were big changes in the world of IRAs. In 1981, Congress opened IRAs to all workers, not just those without an employer-sponsored retirement plan. Suddenly, Americans of all income levels had access to this savings vehicle. By 1986, 18 percent of taxpayers with eligible compensation were contributing to an IRA, according to a Congressional Budget Office report.
IRAs Continue to Evolve and Expand
Over the decades, IRAs have undergone significant transformations. Key legislative changes have expanded eligibility, tax benefits, contribution limits, and portability options. These changes include the following.
Spousal IRAs (1976) The Tax Reform Act of 1976 introduced the spousal IRA, available in 1977, which allowed individuals eligible to contribute to an IRA to make an additional contribution to an IRA for a spouse with no earned income of their own.
Nondeductible Contributions (1986): The Tax Reform Act of 1986 restricted eligibility for deductible contributions, phasing out the deduction for high-income earners who were covered by an employer-sponsored plan. Nondeductible contributions could still be made, with their growth tax-deferred.
Birth of Roth IRAs (1997): The Taxpayer Relief Act of 1997 introduced Roth IRAs, allowing after-tax contributions with tax-free earnings when specified conditions have been met. Traditional IRA’s little sister was innovative and provided greater flexibility for savers.
Catch-Up Contributions (2001): The Economic Growth and Tax Relief Reconciliation Act of 2001 enabled individuals age 50 and older to make additional “catch-up contributions.” This was a welcomed addition for both IRAs and employer-sponsored retirement plans, addressing the need for a late-stage savings boost.
SECURE Act (2019): The Setting Every Community Up for Retirement Enhancement (SECURE) Act allowed IRA owners age 70½ and older to continue to contribute to their IRAs as long as they had eligible compensation. The SECURE Act also raised the age for required minimum distributions (RMDs) from 70½ to 72.
SECURE 2.0 (2022): Building on its predecessor, SECURE 2.0 further increased the RMD age to 73 for 2023 (and to 75 by 2033) and provided incentives for small businesses to establish retirement plans, added flexibility for emergency savings, and introduced automatic enrollment provisions for employer-sponsored retirement plans.
The Impact of IRAs
IRAs offer a path to financial security for individuals of all income levels. IRAs also have shaped the broader retirement industry, encouraging innovation in investment options and financial planning tools. At the end of 2023, IRAs accounted for 35 percent of U.S. retirement market assets. Approximately 56 million U.S. households owned IRAs that held $13.6 trillion in assets (2024 Investment Company Fact Book).
The Challenges and Opportunities Ahead
While IRAs have become a reliable savings vehicle, challenges remain. Many Americans struggle to save enough for retirement, and disparities persist across income and demographic groups. As nontraditional employment like gig work has grown, this trend also underscores the need for more accessible savings options.
Recent legislative efforts, including SECURE 2.0, aim to address those gaps by expanding access and increasing contribution limits to make retirement savings attainable for all.
As we celebrate IRAs’ 50th birthday, it’s good to pause and appreciate how they have grown and evolved. They started as a modest way to supplement retirement savings and have become a pillar of retirement planning that empowers individuals to take control of their financial futures.
Here’s to another 50 years of helping Americans retire with confidence and security—because just like Gen X, IRAs aren’t going anywhere; they’re only getting better with age.
