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The tax benefit of income smoothing

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  • Rydqvist, Kristian
  • Schwartz, Steven T.
  • Spizman, Joshua D.

Abstract

A worker can reduce tax liability by contributing to a private pension plan when marginal tax rates are high and withdraw pension benefits when marginal tax rates are low. We quantify the tax benefit of income smoothing through the private retirement system and find that it is negligible. This conclusion is important to households, investment advisers, tax policymakers, and scholars engaged in financial retirement planning.

Suggested Citation

  • Rydqvist, Kristian & Schwartz, Steven T. & Spizman, Joshua D., 2014. "The tax benefit of income smoothing," Journal of Banking & Finance, Elsevier, vol. 38(C), pages 78-88.
    • Handle: RePEc:eee:jbfina:v:38:y:2014:i:c:p:78-88
    DOI: 10.1016/j.jbankfin.2013.09.017
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    References listed on IDEAS

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    Cited by:

    1. Schwartz, Steven T. & Spires, Eric E. & Young, Richard A., 2015. "A teaching note on the tax benefits of retirement savings," Journal of Accounting Education, Elsevier, vol. 33(2), pages 164-181.

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    More about this item

    Keywords

    Private pensions; Life-cycle model; Tax progressivity;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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