Economic Growth Tax Relief Reconciliation Act - Explained
What is the Economic Growth Tax Relief Reconciliation Act?
Written by Jason Gordon
Updated at April 8th, 2022
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Table of Contents
What is the Economic Growth Tax Relief Reconciliation Act?How Did the EGTRRA Work? Academic Research on Economic Growth Tax Relief Reconciliation Act (EGTRRA)What is the Economic Growth Tax Relief Reconciliation Act?
The Economic Growth Tax Relief Reconciliation Act of 2001 (EGTRRA) was signed into law by President George W. Bush to reform tax rates. EGTRRA is a US tax law that significantly altered retirement plan rules and various tax rates. The Act was initially introduced for 10 years but later on it was extended. Today, it is also known as Bush tax rates.
How Did the EGTRRA Work?
The EGTRRA is a US tax reform act that reformed the tax structure in the United States. It lowered income tax brackets for individuals, set new tax limits for estate and gift taxes, and created new employee retirement plans. It allowed individuals 50 years old and older to increase contributions in their defined-contribution retirement plans. The EGTRRA also revised life expectancy rates for determining defined benefit retirement plan funding. The EGTRRA opened the door for more retirement plans, including the Sidecar IRA and Roth 401 (k). The Sidecar IRA is an employer-sponsored retirement plan. The Roth 401 (k) was introduced for certain public employees and employees of non-government organization. The Roth 401 (k) has similar benefits to a Roth IRA but it is set up on the structure of employer- sponsored plan. The EGTRRA allows administrators of retirement plan to transfer cash out of a 401(k) to an IRA. It also allows shareholders of S-Corporations to borrow funds from their personal pension plans. The EGTRRA is criticized for its effect on the budget deficit. The US government spending budget has been larger than tax revenue since that time. In 2018 more taxes were cut under a law signed by President Donald Trump, creating a $1 trillion dollar budget deficit. The Congressional Budget Office estimates a total US debt of $21 trillion by the end of 2018.