When Did Roth IRAs Start?

The History of Roth IRAs

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A Roth IRA is a popular type of tax-advantaged individual retirement account that allows your investments to grow tax free. You contribute taxed earnings, so you won’t owe taxes on your withdrawals in retirement.

Roth IRAs were created in 1997, so they're a fairly new type of retirement investing account compared to others such as a traditional IRA or 401(k). Learn more about the history of Roth IRAs, including why Congress created them, how the limits have changed, and how their history differs from traditional IRAs' history.

Key Takeaways

  • Individual retirement accounts (IRAs) were established in 1974 to encourage employees without pensions to save for retirement.
  • A traditional IRA allows workers to claim a tax deduction for their contributions, but then they must pay taxes when they make withdrawals.
  • The Roth IRA, established in 1997, allows workers to invest after-tax dollars and take tax-free distributions.

Roth IRA History

Individual retirement accounts, or IRAs, were first authorized by the Employee Retirement Income Security Act (ERISA) of 1974. The goal was to give all workers incentive to save for retirement, even if their employers didn’t offer pensions. The IRAs established by ERISA are known as "traditional" IRAs. Contributions to traditional IRAs are tax deductible, but withdrawals are taxable.

Congress initially limited IRAs to workers who weren’t covered by pension plans. The Economic Recovery Act of 1981 later extended eligibility to all workers and their spouses. But then the Tax Reform Act of 1986 limited the tax break on contributions to workers who didn’t have a workplace retirement plan and whose income fell below certain thresholds. 

Roth IRAs were established by the Taxpayer Relief Act of 1997, which also overhauled the rules for capital gains. The law reduced the maximum capital gains tax rates for individuals from 28% to 20% and it shielded many taxpayers from paying capital gains taxes on the sales of their homes.


Roth IRAs were named for their sponsor, the late Sen. William Roth (R-Del.). They differed from traditional IRAs in that instead of making deductible contributions, account holders could make after-tax contributions, then make withdrawals tax free in retirement, including on investment gains.

Roth IRAs allow for tax-free withdrawals on earnings once the owner reaches age 59½ and has had the account for at least five years. You can withdraw contributions from your Roth anytime.

Individuals older than 70½ couldn’t contribute to a traditional IRA, but individuals with earned income could fund a Roth IRA regardless of age. The Secure Act of 2019 eliminated age restrictions. And while traditional IRAs are subject to required minimum distributions (RMDs), Roth IRA accounts do not require you to take distributions at all.

Roth IRA vs. Traditional IRA

Roth IRA Traditional IRA
Established Taxpayer Relief Act of 1997 Employee Retirement Income Security Act of 1974 (ERISA)
How they work Contributions are not deductible; withdrawals are made tax free Contributions are deductible; withdrawals are taxed as income
Original eligibility rules For workers with incomes below certain thresholds For workers not covered by a pension plan

When IRAs Were Established

Traditional IRAs were established in 1974 under the Employee Retirement Income Security Act (ERISA). Then Congress approved the Taxpayer Relief Act of 1997, which created Roth IRAs.

How IRAs Work

You make contributions to a Roth IRA after you’ve paid taxes on the earnings, then you can take tax-free distributions on earnings when you reach age 59½ if you've had the account for at least five years.

You can make withdrawals of your contributions to a Roth IRA at any time without penalty. In contrast, contributions to a traditional IRA are deductible for many taxpayers. But withdrawals are then taxed as ordinary income in retirement.

The Original Eligibility Rules

Traditional IRAs were limited to workers who weren’t covered by workplace pension plans when ERISA established them in 1974. Traditional IRAs became available to all workers and their spouses in 1981 through the Economic Recovery Act.

Income limits have applied to Roth IRAs since they became available in 1998. Single filers could make the full contribution if their income was $95,000 or less at that time, or a phased-out amount if their income was between $95,000 and $110,000.


Married couples filing joint tax returns could make the full Roth IRA contribution if their combined income was less than $150,000, and a phased-out amount if their incomes were between $150,000 and $160,000. Those earning more than $160,000 weren’t eligible to fund a Roth IRA.

Roth 401(k) History

Roth 401(k)s didn’t become available until 2006. A Roth 401(k) is essentially a hybrid plan that allows employees to invest after-tax dollars, but unlike a Roth IRA, these accounts do have required minimum distributions by age 70½.

Sen. Roth advocated for the creation of Roth 401(k)s in 1999 to allow tax-free growth when workers invested after-tax dollars in their employers’ retirement plans. The goal was to provide more incentives to Americans to save for retirement. More than 86% of 401(k) plans featured a Roth option as of 2020, according to the Plan Sponsor Council of America.

How Contribution Limits Change Over Time

The Economic Growth and Tax Relief Reconciliation Act of 2001 increased the IRA contribution limit to $3,000 and also allowed workers who were 50 or older to make catch-up contributions. It also pegged IRA contribution limits to inflation.

The Internal Revenue Service (IRS) typically releases IRA contribution limits each November, and often reports adjustments. The maximum contribution for both a Roth IRA and traditional IRA is $6,000 in 2022. This hadn't changed since 2019, but it will increase to $6,500 in 2023. Individuals who are age 50 or older can make an extra $1,000 catch-up contribution.

Frequently Asked Questions (FAQs)

How do you open a Roth IRA account?

You can open a Roth IRA at many financial institutions, including brokerage firms, banks, and credit unions. You’ll transfer money from your bank account, then select investments after you've opened the account.

When can you withdraw from a Roth IRA?

You can withdraw Roth IRA contributions tax and penalty free whenever you want. But you could owe taxes and a 10% penalty if you take distributions of the account's earnings before age 59½ or if you haven’t held the account for the five-year minimum.

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The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Congressional Research Service. “Traditional and Roth Individual Retirement Accounts (IRAs): A Primer.”

  2. Library of Congress. “Taxpayer Relief Act of 1997.”

  3. U.S. Congress. “Taxpayer Relief Act of 1997.”

  4. U.S. Bureau of Labor Statistics. “Another Retirement Savings Option: Roth 401(k) Plan.”

  5. Plan Sponsor Council of America. “Retirement Plans Are Looking More SECURE | Plan Sponsor Council of America.”

  6. IRS. “Retirement Topics - IRA Contribution Limits.”

  7. IRS. “2021 Publication 590-B.”

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