The sun will not be setting after all on the favorable retirement plan tax provisions that were part of the Economic Growth and Tax Reconciliation Act of 2001 (EGTRRA).
For budget scoring purposes, the more than three dozen rules which included increases to contribution and benefit limits for IRAs and qualified retirement plans had “sunset” provisions which were set to expire on December 31, 2010. (Budget scoring is the process of calculating the budgetary effects of pending and enacted legislation and assessing their impact on the targets or limits in the budget resolution).
The new Pension Protection Act of 2006 (PPA) now makes permanent the EGTRRA rules. One result of which is to allow participants in defined contribution plans to make larger contributions in the future. Such as:
- 401(k) limit now $15,000 in 2006 would have been reduced to $13,500 in 2011.
- 401(k) catch-up (age 50+) now $5,000 in 2006 would have been totally eliminated in 2011.
- IRA limit now $4,000 in 2006 would have been reduced to $2,000 in 2011.
- IRA catch-up (age 50+) now $1,000 in 2006 would have been totally eliminated in 2011.
- SIMPLE IRA limit now $10,000 in 2006 would have been $8,000 in 2011.
- SIMPLE IRA catch-up (age 50+) now $2,500 in 2006 would have been totally eliminated in 2011.
In other words, if the EGTRRA rules had been allowed to expire, the contribution limits would have reverted to pre-EGTRRA (2001) levels, adjusted for inflation.