Abstract The 1981 Economic Recovery Tax Act (ERTA) permits employees to make contributions to an IRA even if they are already enrolled in a retirement plan. However, eligible taxpayers should find a tax-deferral plan made available in the Revenue Act of 1978 more attractive. The Section 403(b)(7) plans are more attractive than IRAs because they permit larger contributors, provide broader investment opportunities, permit easier withdrawal of funds, and eliminate possible tax penalties. This paper initially presents the advantages of the Section 403(b)(7) plans and then discusses the eligibility requirements, the contribution limitations, and the taxation of benefits received from such plans. The contribution limitation alternatives are illustrated with examples and flowcharts.
Schnee et al. (Sat,) studied this question.