# Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA)

## What Is EGTRRA?

The Economic Growth and Tax Reconciliation Relief Act of 2001 (EGTRRA) is a U.S. tax law signed by President George W. Bush that made significant changes to retirement plan rules and overall tax rates. The law was passed with a sunset provision to end in 2010 but was extended and is widely known today as the Bush tax cuts.

## Understanding EGTRRA

The Economic Growth and Tax Reconciliation Relief Act of 2001 (EGTRRA) was a sweeping U.S. [tax reform](https://www.investopedia.com/terms/b/bush-tax-cuts.asp) package that lowered income tax brackets, put into place new limits on the [estate tax](https://www.investopedia.com/terms/e/estatetax.asp), allowed for higher contributions into an [IRA](https://www.investopedia.com/terms/i/ira.asp) and created new employer-sponsored retirement plans. Changes to retirement plans included the ability for people over the age of 50 to make larger contributions to help them build up their retirement balances. The law also revised the life expectancy tables used for determining retirement ages.

With the passage of EGTRRA, two new retirement savings plans were born. The first was the Sidecar IRA, which is a [Roth IRA](https://www.investopedia.com/terms/r/rothira.asp) attached to an [employer-sponsored retirement plan](https://www.investopedia.com/terms/e/employer_sponsored_plan.asp). This new plan allows the employee to benefit from different tax treatment while pooling their retirement investments with the employer plan. The other significant new plan was the Roth 401(k) and the related Roth 403(b) for certain public employees and employees of non-governmental organizations. This new employer-sponsored retirement plan similar allows access to an account with similar benefits as a Traditional Roth IRA, but in the structure of an employer-sponsored plan.

EGTRRA also required retirement plan administrators to take [involuntary cash-outs](https://www.investopedia.com/retirement-planning-4689695) of 401(k) accounts into a default IRA. This helped employers clear off their books inactive small accounts left behind by former employees who had not responded to repeated requests about where to transfer their retirement account balances.

Another change brought about by EGTRRA was the ability of [S corporation](https://www.investopedia.com/terms/s/subchapters.asp) stakeholders to borrow against their company pension plans.

## Controversy Surrounding EGTRRA

Controversy surrounding the impacts of EGTRRA continues to the present day. Passed in large part given the [sunset provision](https://www.investopedia.com/terms/s/sunsetprovision.asp) intended to go into effect in 2010, these new tax reductions were instead extended in 2010. Then in 2018 additional tax cuts were signed into law under the Trump administration, this despite the fact the Congressional Budget Office estimated the U.S. debt would be more than $21 trillion by the end of 2018.

EGTRRA was passed in June 2001 at a time when the U.S. had a [budget surplus](https://www.investopedia.com/terms/b/budget-surplus.asp) and shortly before the devastating September 11 attacks on the United States. The country was in recession shortly following the attacks of September 11 and involved in two wars, one in Iraq and one in Afghanistan. The costs of these wars, plus the costs of new Homeland Security initiatives, on top of the [Great Recession of 2008](https://www.investopedia.com/terms/g/great-recession.asp) could not be seen at the time EGTTRA was first passed.

The circumstances surrounding its extension in 2010 were highly political. The rising debt was a major concern for the GOP, the party that pushed through the original legislation, and there was a Democratic president in office at the time, President Obama, who was widely criticized for the his administration's oversight of [TARP](https://www.investopedia.com/terms/t/troubled-asset-relief-program-tarp.asp), which provided widespread liquidity following the market shocks of 2008 and 2009. In 2010, the Great Recession was only two years in the rear mirror, with the global economy only wobbling slightly forward with stubbornly low inflation. It was against this backdrop of difficult times around the world that the decision was made to extend EGTRRA.

> **Article Sources**
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> 1.  Congress. "[H.R.1836 - Economic Growth and Tax Relief Reconciliation Act of 2001](https://www.congress.gov/bill/107th-congress/house-bill/1836/text)."
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> 2.  Congress. "[H.R.4853 - Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010](https://www.congress.gov/bill/111th-congress/house-bill/4853)."
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> 3.  Congress. "[H.R.1 - An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018](https://www.congress.gov/bill/115th-congress/house-bill/1)."
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> 4.  U.S. Department of the Treasury. "[Historical Debt Outstanding](https://fiscaldata.treasury.gov/datasets/historical-debt-outstanding/historical-debt-outstanding)."
>     
> 5.  U.S. Department of the Treasury. "[What Is the National Deficit?](https://fiscaldata.treasury.gov/national-deficit/)"
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> 6.  U.S. Department of the Treasury. "[About TARP](https://home.treasury.gov/data/troubled-assets-relief-program/about-tarp)."
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> 7.  Macrotrends. "[World Inflation Rate 1981-2022](https://www.macrotrends.net/countries/WLD/world/inflation-rate-cpi)."