Honoring a Half-Century of Retirement Savings
This year, 2025, marks the 50th anniversary of the Individual Retirement Account (IRA)—a milestone worth recognizing for anyone planning for their financial future. First introduced in the mid-1970s to support American workers without pensions, IRAs have since evolved into a foundational retirement savings vehicle for millions.
As a custodian specializing in self-directed IRAs, Mainstar Trust is proud to celebrate this milestone by reflecting on the history and impact of IRAs over the past five decades. Understanding where IRAs came from can help investors better appreciate their potential to support long-term financial goals.
The Birth of the IRA: 1974 and the ERISA Act
The IRA was officially born out of the Employee Retirement Income Security Act of 1974 (ERISA). This landmark legislation was enacted in response to growing concerns about pension security and retirement preparedness among American workers. ERISA established federal standards for private-sector retirement plans and created the framework for IRAs as a way for individuals without access to pensions to save for retirement.
Although ERISA was signed into law in 1974, January 1, 1975 was the first day Americans could begin contributing to IRAs. Initially, IRAs were limited to workers not covered by employer-sponsored retirement plans, with annual IRA contribution limits set at $1,500.
Expansion and Evolution Through the 1980s and 1990s
Over time, Congress recognized the need to expand access to IRAs to support more workers. Key legislation helped shape the IRA landscape we know today:
- The Economic Recovery Tax Act of 1981 (ERTA) allowed all wage-earning taxpayers under age 70½ to contribute to an IRA, regardless of whether they had an employer-sponsored plan.
- The Tax Reform Act of 1986 added earned income limits for deductible contributions, which introduced more complexity—but preserved the benefit for lower- and middle-income earners.
- The Small Business Job Protection Act of 1996 introduced the SIMPLE IRA, offering a streamlined retirement plan option for small businesses with 100 or fewer employees.
Then, in 1997, the Taxpayer Relief Act introduced a new type of account: the Roth IRA. Named after Senator William Roth, this IRA allowed after-tax contributions and tax-free qualified withdrawals, creating a new path for tax-advantaged retirement savings.
A Foundation for Retirement in the 21st Century
Today, IRAs are one of the most widely used retirement savings tools in the United States. According to data from the Investment Company Institute (ICI), more than 47 million U.S. households own IRAs, with total IRA assets exceeding $13 trillion as of 2023.
There are now several types of IRAs, including:
- Traditional IRAs (tax-deferred (pre-tax) contributions)
- Roth IRAs (after-tax contributions with tax-free withdrawals)
- SEP IRAs and SIMPLE IRAs (for business owners and the self-employed)
- Inherited IRAs (for beneficiaries of retirement plan assets)
- Rollover IRAs (for individuals who have changed jobs or retired)
- Self-Directed IRAs (SDIRAs), which allow investments beyond stocks and mutual funds—including real estate, private equity, promissory notes, and more.
The flexibility and tax advantages offered by these investment choices continue to make IRA accounts a key component of personal finance strategies for workers, business owners, and retirees alike.
The Role of IRA Custodians Like Mainstar Trust
As IRAs have grown in popularity and complexity, choosing the right custodian has become increasingly important—especially for individuals interested in holding alternative assets through a Self-Directed IRA.
At Mainstar Trust, our financial institution serves as a custodian for a wide variety of IRA accounts, offering:
- Decades of experience: Our team has more than 40 years of combined organizational knowledge and deep expertise in custodial account management.
- Flexible investment options: We support a wide range of alternative asset types, including private lending, real estate, and more.
- Reliable recordkeeping: We handle administrative and Internal Revenue Service (IRS) reporting requirements so you can stay focused on your long-term savings goals.
Whether you’re opening your first IRA or expanding your strategy to include alternative assets, Mainstar Trust is here to support your custodial needs.
Understanding Tax Considerations with Traditional IRAs
As with any retirement savings account, IRAs are subject to certain IRS rules and tax implications. Contributions to a traditional IRA may be tax deductible, depending on your income, filing status, and whether you participate in an employer-sponsored plan. Earnings within the account grow tax-deferred, and taxpayers will generally pay income tax on withdrawals made in retirement. Once you reach age 73 (or 75, depending on your birth year), Required Minimum Distributions (RMDs) are mandated for traditional IRAs, which may increase your taxable income.
It's also important to note that early distributions before age 59½ may incur additional taxes and penalties. While Roth IRAs offer tax-exempt withdrawals in many cases, understanding these basic rules for traditional IRAs can help you prepare for long-term savings strategies.
Looking Ahead: The Next 50 Years of Retirement Savings
As we celebrate the 50th anniversary of IRAs, it's clear that these accounts have played a vital role in reshaping how Americans save for retirement. What began as a small savings vehicle for workers without pensions has become a central part of millions of retirement strategies.
The future of retirement savings will likely continue to evolve—with legislation, tax rules, and investment opportunities shifting over time. Through it all, Mainstar Trust remains committed to providing trustworthy custodial services that empower account holders to take control of their retirement planning.
Ready to open an IRA or explore self-directed options? Reach out to the Mainstar Trust team today to get started.