By Richard L. Kaplan

About the Article

When individual retirement accounts (IRAs) were originally created, their sole purpose was to set up personal retirement savings accounts for working taxpayers, whereby persons could invest funds tax free into the account during their employment years and then withdraw from the account during retirement. From this humble beginning, though, the uses to which IRAs may be put have burgeoned exponentially, turning them into all-purpose investment vehicles. As a result, IRAs often have little to do with their goal of providing retirement income for account holders. In his article, Professor Richard Kaplan explores in detail the preretirement uses of IRAs. Although the tax code imposes a penalty for withdrawing IRA funds before a person reaches a certain age, it also provides various exceptions from this penalty. Specifically, Professor Kaplan examines three recently enacted withdrawal exceptions for home purchases, educational costs, and medical expenses. He argues that all three are inconsistent with the original intent of IRAs and contrary to public policy. First, by removing the tax penalty from these preretirement withdrawals, the exceptions contribute to financial myopia in account holders who may be willing to risk short-term gains for substantial, long-term economic losses. More importantly, these three exceptions conflict with the fundamental policy driving IRAs—they allow individuals to use IRAs for nonretirement purposes. For this same reason, Professor Kaplan also criticizes the joint beneficiary rules for Roth IRAs, which allow an account holder to appoint a child or grandchild as a joint beneficiary, thereby converting a retirement savings account into a multigenerational trust fund. To return to the primary goal of IRAs as retirement funding accounts, Professor Kaplan calls for the repeal of the three nonretirement use exceptions and the elimination of postdeath IRAs for the benefit of succeeding generations.

About the Author

Richard Kaplan is a Professor of Law at the University of Illinois. He received his B.S. in 1970 from Indiana University and his J.D. in 1976 from Yale University.

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The Elder Law Journal

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