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The history of IRAs can be traced back to the introduction of Individual Retirement Arrangements in the 1974 ERS (Employee Retirement Securities) Act. This Act enabled people, who were not entitled to any sort of pension plan sponsored by their employers, to make annual contributions to a retirement plan that was tax-deferred. This helped them save money for a comfortable life after retirement. However, it was only in the year 1981 that a new law was passed by the Carter Administration that allowed individuals to invest simultaneously in IRAs and pension plans sponsored by the employer. In 1986, another law was enforced under the TRA (Tax Reform Act) to restrict the eligibility of simultaneous contributions to individuals with an annual earning of not more than $50,000 in case of joint filers and $35,000 in case of single filers.
Roth IRA’s history can be traced back to 1995, when a similar plan, known as ‘American Dream Saving (ADS)’ Account, was put forward. However, this new plan was rejected and never put into effect. It was for the first time in 1998 that individuals were allowed to open Roth IRA accounts, as per the law enforced under the 1997 Taxpayer Relief Act. This plan came with several benefits, such as tax-free early withdrawals and provisions for direct rollovers from 401k to Roth. In the very beginning, the maximum annual Roth contribution limit was $2,000 for individuals with an annual income of $95000 in case of single filers, and $150,000 in case of joint filers.
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