Congress created IRAs in 1974 to give Americans extra incentive to save for retirement. IRAs were immensely popular at first, but interest waned in the 1980s when Congress slapped limits on tax-deductible contributions. The entry of 401(k) plans onto the scene gave workers another way to save for retirement, and drew attention away from IRAs.
All that changed in 1997, when Congress passed the Taxpayer Relief Act. This created new types of IRAs with different rules, among them the Roth IRA. Some rules for traditional IRAs were also changed to make them more attractive. As a result, IRAs are no longer used only to save for retirement -- under certain circumstances, they can effectively be used to save for higher education and first homes, or can be tapped for emergencies.
With choice has come confusion. Investors wonder where to put their money: Traditional IRA…Roth IRA…401(k) or other employer sponsored retirement plan…?