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Individual Retirement Accounts (IRAs): Legislative Issues in the 105th Congress, Date: January 10, 2001 1 (January 10, 2001)

handle is hein.tera/crstax0287 and id is 1 raw text is: Order Code 96-20 EPW Updated January 10, 2001 CRS Report for Congress Received through the CRS Web Individual Retirement Accounts (IRAs): Legislative Issues in the 106th Congress James R. Storey Specialist in Social Legislation Domestic Social Policy Division Summary Bills itroduced n the 106 Congress \ woukld h e lralsed the limit on contrbltons to indi idal retirement acconits (IRAs) and eased other federal IRA rules. The House plassed H.R. 5203. incorporating the igher IRA co19trbution limits of H.R. 1 102, oi September 19, 2000. The IRA prov isions of thle bill wNould hiave cost $21.7 b-illioni inl forcoe revnu b pover N sn10 yeas. The Senate Finace Committee ordered HR. I102 reported (wi th amlendmlenits) onl September 7, 2000, but thle bill did niot reachi the Senite floor before the 106 Con 0ress ad j ourned i December 200. TIe Finnce Committee's bill, in addition to isin(g contribution lim)its would thae allowed tax credits in lieue of dedu0ctions for a p nortion of IRA contributios. Legislative History In 1971, President Nixon proposed that workers be allowed to defer from taxable income an amount of earnings set aside in an IRA. IRAs were first authorized by the Employee Retirement Income Security Act (ERISA) of 1974 (P.L. 93-406) for workers not covered by employer pension plans. They could make tax-deferred IRA contributions up to the lesser of $1,500 a year or 15 of earned income. In 1981, the Economic Recovery Tax Act of 1981 (P.L. 97-34) raised the contribution limit to the lesser of $2,000 or 1000 of earnings and made all workers eligible. A total of $2,250 could be contributed by a worker and a nonworking spouse. The Tax Refori Act of 1986 (P.L. 99-514) restricted IRA tax deferrals to: (1) workers with no employer plan coverage; and (2) workers in employer plans who meet an income test. Married couples were treated as having employer coverage if at least one spouse had such coverage. In the 1 990s, pressure built to restore tax deferrals, ease early withdrawal penalties, and allow backdoor IRAs that receive taxable contributions and pay tax-free benefits. Between 1992 and 1995, Congress passed such provisions three times in bills that were vetoed. However, penalty-free withdrawals for certain health expenses (P.L. 104-19 1) and a separate $2,000 contribution limit for nonworking spouses (P.L. 104-188) did become law. Major IRA changes finally w~ere adopted in the Taxpayer Relief Act of 1997 (P.L. Congressional Research Service 0 The Library of Congress

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