The Economic Growth and Tax Reconciliation Act of 2001 (EGTRRA) was a boon to retirement plans. But while increased contribution amounts and rule simplification garnered the headlines, it was the fine print that should have had teachers dancing in the streets.

But there are two reasons why this isn't happening: 1) Nobody dances in the streets anymore, and 2) nobody has done a good job of telling teachers why they should be dancing in the streets. So we'll give it a try here: Thanks to EGTRRA, teachers can sock away $24,000 a year in defined-contribution plans in 2003. Those eligible for catch-up contributions can sock away even more. Maybe teachers should celebrate with a sock hop.

In simple terms, EGTRRA allows teachers to contribute $12,000 a year to a 403(b) and $12,000 a year to a governmental 457(b), which has traditionally been offered to state and local government employees. In many cases 457(b) plans were also made available to educators. Teachers have always been allowed to contribute to both plans, but prior to EGTRRA they were limited to the total aggregate amount of the 457(b), which was only $8,500. Instead, savvy educators contributed only to the 403(b), where they were allowed to stash up to $11,000.

Catch-up fever: Up to $41,000
As great as contributing $24,000 a year is, it's the catch-up contributions that make educators want to kick up their heels. Bear with me -- the following gets a little wild, but it's well worth the effort.

Governmental 457(b) plans contain a special "catch-up" allowance called the "final three-year provision" for those approaching retirement (assuming they haven't contributed the maximum amount in prior years). This provision, which used to limit participants to an additional $15,000 over a three-year period, now permits up to 200% of the elective deferral limit, or $24,000 in 2003. This catch-up provision kicks in during the three years prior to "normal" retirement age (as defined by the plan).

Example: If a worker will reach normal retirement age by 2009, he or she can take advantage of the final three-year provision in years 2006, 2007, and 2008. Those who qualify can defer $12,000 to the 403(b) plus $24,000 to the 457(b) for a total deferral of $36,000.

Additionally, anyone age 50 or older can contribute an additional $2,000 (in 2003) to the 403(b). This means a worker could conceivably make $38,000 in contributions during 2003.

Note that the 457(b) also allows workers age 50 or older to make catch-up contributions. However, participants who take advantage of the final three-year provision cannot also take advantage of the age 50 catch-up provision under the 457(b) plan.

There's even more!
The 403(b) has its own additional catch-up provision called the "15-year rule." This special catch-up provision allows participants to increase their annual contribution by $3,000 more than the current $12,000 limit (as of 2003). To qualify, workers must have completed at least 15 years of service with the same employer (years of service need not be consecutive), and cannot have contributed more than an average of $5,000 in previous years.

Contributions made under the 15-year rule cannot exceed $3,000 per year, up to a $15,000 lifetime maximum (under current rules). Add that to the aforementioned $38,000, and a worker could make a whopping $41,000 in contributions during 2003. It is highly recommended that you consult a tax or investment professional (such as TMF Money Advisor) before taking advantage of any of these provisions.

Now the bad news
Not all school districts, colleges, and universities offer governmental 457(b) plans.

Now the good news
Urged on by vendors, educational institutions are slowly but surely beginning to offer governmental 457(b) plans. If your employer doesn't, lobby the powers that be to add one. Point out the ability to contribute to both a 403(b) and a 457(b) plan. Emphasize what is perhaps the biggest advantage of all: The governmental 457(b) is not subject to the age 59 1/2 withdrawal rule. This means there is no 10% penalty for early withdrawal at retirement or upon termination of employment.

Clearly, $41,000 is a large sum for anyone -- especially an educator -- to be able to contribute to a retirement plan. Still, it's nice to know that it's an option. And if you're fortunate enough to be able to sock away a chunk of change, be sure to set aside some money to buy your dancing shoes.

Dan Otter is an adjunct professor at American University in Washington, D.C. In addition to operating 403(b)wise and 457(b)wise , he is the co-author of The 403(b) Wise Guide , a book that Vanguard founder John Bogle calls "right on!"