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Asset location in tax-deferred and conventional savings accounts

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  • Shoven, John B.
  • Sialm, Clemens

Abstract

The optimal allocation of assets among different asset classes (such as stocks and bonds) has received considerable attention in financial theory and practice. On the other hand, investors have not been given much guidance about which assets should be located in tax-deferred retirement accounts and which in conventional savings accounts. This paper derives optimal asset allocations (which assets to hold) and asset locations (where to hold them) for a risk-averse investor saving for retirement. Locating assets optimally can significantly improve the risk-adjusted performance of retirement savings.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Public Economics.

Volume (Year): 88 (2004)
Issue (Month): 1-2 (January)
Pages: 23-38
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Handle: RePEc:eee:pubeco:v:88:y:2004:i:1-2:p:23-38

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References

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  1. John B. Shoven, 1999. "The Location and Allocation of Assets in Pension and Conventional Savings Accounts," NBER Working Papers 7007, National Bureau of Economic Research, Inc.
  2. Constantinides, George M, 1983. "Capital Market Equilibrium with Personal Tax," Econometrica, Econometric Society, vol. 51(3), pages 611-36, May.
  3. James M. Poterba & Andrew Samwick, 2001. "Household Portfolio Allocation over the Life Cycle," NBER Chapters, in: Aging Issues in the United States and Japan, pages 65-104 National Bureau of Economic Research, Inc.
  4. James M. Poterba, 1988. "How Burdensome are Capital Gains Taxes?," NBER Working Papers 1871, National Bureau of Economic Research, Inc.
  5. Dybvig, Philip H & Ross, Stephen A, 1986. " Tax Clienteles and Asset Pricing," Journal of Finance, American Finance Association, vol. 41(3), pages 751-62, July.
  6. Dammon, Robert M & Spatt, Chester S, 1996. "The Optimal Trading and Pricing of Securities with Asymmetric Capital Gains Taxes and Transaction Costs," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 9(3), pages 921-52.
  7. Balcer, Yves & Judd, Kenneth L, 1987. " Effects of Capital Gains Taxation on Life-Cycle Investment and Portfolio Management," Journal of Finance, American Finance Association, vol. 42(3), pages 743-58, July.
  8. N. Gregory Mankiw & James Poterba, 1996. "Stock-Market Yields and the Pricing of Municipal Bonds," Harvard Institute of Economic Research Working Papers 1761, Harvard - Institute of Economic Research.
  9. Stiglitz, Joseph E., 1983. "Some aspects of the taxation of capital gains," Journal of Public Economics, Elsevier, vol. 21(2), pages 257-294, July.
  10. Alan J. Auerbach & Leonard E. Burman & Jonathan Siegel, 1998. "Capital Gains Taxation and Tax Avoidance: New Evidence from Panel Data," NBER Working Papers 6399, National Bureau of Economic Research, Inc.
  11. James M. Poterba & John B. Shoven & Clemens Sialm, 2000. "Asset Location for Retirement Savers," NBER Working Papers 7991, National Bureau of Economic Research, Inc.
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Citations

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Cited by:
  1. Gene Amromin, 2005. "Precautionary savings motives and tax efficiency of household portfolios: an empirical analysis," Finance and Economics Discussion Series 2005-01, Board of Governors of the Federal Reserve System (U.S.).
  2. Mihir A. Desai & Dhammika Dharmapala & Winnie Fung, 2005. "Taxation and the Evolution of Aggregate Corporate Ownership Concentration," NBER Working Papers 11469, National Bureau of Economic Research, Inc.
  3. Gene Amromin & Jennifer Huang & Clemens Sialm, 2006. "The Tradeoff Between Mortgage Prepayments and Tax-Deferred Retirement Savings," NBER Working Papers 12502, National Bureau of Economic Research, Inc.
  4. James M. Poterba & John B. Shoven & Clemens Sialm, 2000. "Asset Location for Retirement Savers," NBER Working Papers 7991, National Bureau of Economic Research, Inc.
  5. Gene Amromin, 2008. "Precautionary Savings Motives and Tax Efficiency of Household Portfolios: An Empirical Analysis," NBER Chapters, in: Tax Policy and the Economy, Volume 22, pages 5-41 National Bureau of Economic Research, Inc.
  6. Milligan, Kevin, 2003. "How do contribution limits affect contributions to tax-preferred savings accounts?," Journal of Public Economics, Elsevier, vol. 87(2), pages 253-281, February.
  7. Gary V. Engelhardt & Anil Kumar, 2007. "Employer matching and 401(k) saving: Evidence from the health and retirement study," NBER Chapters, in: Trans-Atlantic Public Economics Seminar (TAPES), Public Policy and Retirement, pages 1920-1943 National Bureau of Economic Research, Inc.
  8. Clemens Sialm, 2009. "Tax Changes and Asset Pricing," American Economic Review, American Economic Association, vol. 99(4), pages 1356-83, September.
  9. Clemens Sialm & Laura Starks, 2009. "Mutual Fund Tax Clienteles," NBER Working Papers 15327, National Bureau of Economic Research, Inc.
  10. Gaobo Pang, . "Tax-Deferred Savings and Early Retirement," Research Reports 3, Watson Wyatt Worldwide.
  11. Christine Lai, 2006. "Determinants of Portfolio Efficiency Losses in US Self-directed Pension Accounts," Journal of Family and Economic Issues, Springer, vol. 27(4), pages 601-625, December.
  12. Richard Johnson, 2003. "Portfolio choice in tax-deferred and Roth-type savings accounts," Research Working Paper RWP 03-08, Federal Reserve Bank of Kansas City.

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