The history of IRAs

black-and-white-factory-workers-history-of-IRAs

The concept of IRAs and Qualified Plans has been around for many years, first created conceptually by the Chancellor of Germany, Otto von Bismarck, in the 1800s. The United States had a series of events that culminated in the government enacting the Employee Retirement Income Security Act of 1974 or ERISA. Its rules are codified in the U.S. Treasury Codes and are for the most part governed by the Department of Labor. 

In this video, Yieldstreet Director of Retirement Services, Joe DiDomenico goes over the history of IRAs, or Individual Retirement Accounts, and why some of the rules around them might seem antiquated in these times. 

Why are IRAs handled by the Department of Labor?

The reason the Department of Labor is involved is that ERISA was mostly targeted to protect the interests of employees who participated in company retirement plans like pension programs. IRAs were established at the same time to give people who didn’t work for companies with retirement plans an opportunity to save for retirement. 

In the 1930s, under the Roosevelt administration, there was a lot of activity to pass legislation under the president’s New Deal. This included allowing collective bargaining rights that gave labor unions a boost. However, it also created a divisive atmosphere between large company ownership and management versus employees. 

What led to the creation of retirement accounts?

One of the biggest events that triggered the creation of rules for employer-sponsored plans and IRAs was the closing of the Studebaker plant in South Bend, Indiana on March 18, 1933. It set in motion a movement that led to some real changes in this country that are still in effect today. The American automaker was hit hard by the Great Depression and went into receivership because it was so heavily in debt. As a result, over 4,000 factory workers lost their jobs as well as most of their pensions. The average age of these employees was 52 and their average tenure of service for the company was 23 years. The management and ownership group did not experience the kind of heavy losses as the lower-ranking employees.  

women-working-in-a-factory-history-of-retirement-accounts

What is the purpose of IRAs? Why are certain activities prohibited by them?

The overarching purpose of the set of laws put in place for IRAs is to allow Americans from all walks of life to save for retirement in a tax-advantaged way and encourage investing. 

As Congress was facing a wide-sweeping tax proposal at the time, it wanted to protect against certain unintended consequences of IRAs. This led them to disallow certain activities with regard to IRAs. 

One of the things they wanted to prevent was giving assets owned by retirement plans a competitive advantage over assets that are not. What would end up happening if this were allowed is that every business would eventually be owned by a retirement plan. For example, a business would be able to charge lower prices because they wouldn’t have to worry about paying taxes. 

Additionally, at this time, a lot of congressmen were a part of families who owned leading companies in a number of different industries. These families were worried they were going to be displaced. They were also worried that wealthy people would try and use IRAs as a way to avoid estate taxes by selling assets in retirement plans to the next generation at a low price. 

Finally, they were worried people would just have their IRAs buy things that they would use and consume so they would never need to take a distribution from their IRA. They would just enjoy the things the IRA buys until it was gone. The Treasury, in this case, would never receive the tax revenue from distributions. 

Overall, the main idea behind IRAs is to give people a deferral of taxes and for the government to get their revenue, eventually, down the road. For these reasons, some parties are not allowed to do business with your IRA, including yourself. Certain types of investments are also not allowed, and some investment activity is taxed, even though they are held in an IRA. 

automotive-factory-black-and-white-history-of-IRAs

What types of investments are and aren’t allowed by IRAs?

Stocks, bonds, and mutual funds, marketable securities, in other words, are allowed to be owned by IRAs. In fact, there are so many things that can be invested in with an IRA that the IRS has just listed the few things that can’t be invested in. These include:

  1. Collectibles
  2. Life insurance 
  3. S-corporations

IRAs have endured more than 40 years of tax law tinkering and are definitely here to stay as one of the foundations of the American Dream. 

You can now invest in Yieldstreet’s line of alternative investments by rolling over your existing IRA(s) or enrolling in the Yieldstreet IRA. To learn more about how you can take retirement planning to the next level, contact us at [email protected]

This communication and the information contained in this article are provided for general informational purposes only and should neither be construed nor intended to be a recommendation to purchase, sell or hold any security or otherwise to be investment, tax, financial, accounting, legal, regulatory or compliance advice. Any link to a third-party website (or article contained therein) is not an endorsement, authorization or representation of our affiliation with that third party (or article). We do not exercise control over third-party websites, and we are not responsible or liable for the accuracy, legality, appropriateness or any other aspect of such website (or article contained therein).

How helpful is this content?

Since inception, over has been invested on Yieldstreet

Join today for free to access alternative investment opportunities.

1 Past performance is no guarantee of future results. Any historical returns, expected returns, or probability projections may not reflect actual future performance. All securities involve risk and may result in significant losses.

2 Represents a net estimated, unrealized annualized internal rate of return (IRR) of your portfolio and is based by reference to the effective distribution dates and amounts to and from the investments, as well as any outstanding principal and accrued and unpaid interest as of the current date, after deduction of management fees and all other expenses charged to the investments.[read more]

3 "Annual interest" represents an annual target rate of interest and "term" represents the estimated term of the investment. Such target returns and estimated term are projections of the returns or term and may ultimately not be achieved. Actual returns and term may be materially different from such projections. These targeted returns and estimated term are based on the underlying agreement between the SPV and borrower or originator, as applicable.

4 Reflects the initial quarterly distribution declared by the board of directors on February 6, 2020, which will be payable to stockholders of record as of June 10, 2020, and the initial offering price of $10 per share.

5 The Fund will cease investing and seek to liquidate the Fund's remaining portfolio no later than 48 months after the Fund's initial closing. It may take up to twelve months thereafter to fully monetize any remaining illiquid investments in the Fund's portfolio.

300 Park Avenue 15th Floor, New York, NY 10022

844-943-5378

No communication by YieldStreet Inc. or any of its affiliates (collectively, “Yieldstreet™”), through this website or any other medium, should be construed or is intended to be a recommendation to purchase, sell or hold any security or otherwise to be investment, tax, financial, accounting, legal, regulatory or compliance advice. Nothing on this website is intended as an offer to extend credit, an offer to purchase or sell securities or a solicitation of any securities transaction.

Any financial projections or returns shown on the website are estimated predictions of performance only, are hypothetical, are not based on actual investment results and are not guarantees of future results. Estimated projections do not represent or guarantee the actual results of any transaction, and no representation is made that any transaction will, or is likely to, achieve results or profits similar to those shown. In addition, other financial metrics and calculations shown on the website (including amounts of principal and interest repaid) have not been independently verified or audited and may differ from the actual financial metrics and calculations for any investment, which are contained in the investors’ portfolios. Any investment information contained herein has been secured from sources that Yieldstreet believes are reliable, but we make no representations or warranties as to the accuracy of such information and accept no liability therefor.

Private placement investments are NOT bank deposits (and thus NOT insured by the FDIC or by any other federal governmental agency), are NOT guaranteed by Yieldstreet or any other party, and MAY lose value. Neither the Securities and Exchange Commission nor any federal or state securities commission or regulatory authority has recommended or approved any investment or the accuracy or completeness of any of the information or materials provided by or through the website. Investors must be able to afford the loss of their entire investment.

Investments in private placements are speculative and involve a high degree of risk and those investors who cannot afford to lose their entire investment should not invest. Additionally, investors may receive illiquid and/or restricted securities that may be subject to holding period requirements and/or liquidity concerns. Investments in private placements are highly illiquid and those investors who cannot hold an investment for the long term (at least 5-7 years) should not invest.

Alternative investments should only be part of your overall investment portfolio. Further, the alternative investment portion of your portfolio should include a balanced portfolio of different alternative investments.

Articles or information from third-party media outside of this domain may discuss Yieldstreet or relate to information contained herein, but Yieldstreet does not approve and is not responsible for such content. Hyperlinks to third-party sites, or reproduction of third-party articles, do not constitute an approval or endorsement by Yieldstreet of the linked or reproduced content.

Investing in securities (the "Securities") listed on Yieldstreet™ pose risks, including but not limited to credit risk, interest rate risk, and the risk of losing some or all of the money you invest. Before investing you should: (1) conduct your own investigation and analysis; (2) carefully consider the investment and all related charges, expenses, uncertainties and risks, including all uncertainties and risks described in offering materials; and (3) consult with your own investment, tax, financial and legal advisors. Such Securities are only suitable for accredited investors who understand and willing and able to accept the high risks associated with private investments.

Investing in private placements requires long-term commitments, the ability to afford to lose the entire investment, and low liquidity needs. This website provides preliminary and general information about the Securities and is intended for initial reference purposes only. It does not summarize or compile all the applicable information. This website does not constitute an offer to sell or buy any securities. No offer or sale of any Securities will occur without the delivery of confidential offering materials and related documents. This information contained herein is qualified by and subject to more detailed information in the applicable offering materials. Yieldstreet™ is not registered as a broker-dealer. Yieldstreet™ does not make any representation or warranty to any prospective investor regarding the legality of an investment in any Yieldstreet Securities.

Banking services are provided by Evolve Bank & Trust, Member FDIC.

Investment advisory services are provided by YieldStreet Management, LLC, an investment advisor registered with the Securities and Exchange Commission.