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The Determinants of IRA Contributions and the Effect of Limit Changes

In: Pensions in the U.S. Economy

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  • Steven F. Venti
  • David A. Wise

Abstract

Tax-deferred savings are potentially an important component of savings for retirement and could represent a very substantial increase in tax-free savings for many employees. IRAs may also have a substantial effect on national savings. Total IRA contributionsin 1982 were over 29 billion dollars. Despite the program's size and potential significance, little is known about the determinants of IRA contributions.This paper presents: (1) analysis of the effect of individual attributes on whether a person contributes, (2) analysis of the effect of individual attributes on how much is contributed,and (3) simulations of the effect of potential changes in contribution limits on the amount that is contributed to IRA accounts. Results of a similar analysis based on Canadian data are compared with results for the United States. Persons with low incomes are unlikely to have IRA accounts. In addition, after controlling for income, age, and other variables, persons without private pension plans are no more likely than those with them to Contribute to an IRA. The analysis of Canadian data yields similar findings, and indeed specific parameter estimates for the two countries are very similar. Simulations based on the estimates suggest that the current Treasury Department proposal would lead to about a 30 percent increase in IRA contributions.

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This chapter was published in:

  • Zvi Bodie & John B. Shoven & David A. Wise, 1988. "Pensions in the U.S. Economy," NBER Books, National Bureau of Economic Research, Inc, number bodi88-1, May.
    This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 6043.

    Handle: RePEc:nbr:nberch:6043

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    1. Feldstein, Martin S, 1976. "Personal Taxation and Portfolio Composition: An Econometric Analysis," Econometrica, Econometric Society, vol. 44(4), pages 631-50, July.
    2. Deaton, Angus & Irish, Margaret, 1984. "Statistical models for zero expenditures in household budgets," Journal of Public Economics, Elsevier, vol. 23(1-2), pages 59-80.
    3. Mervyn A. King & Jonathan I. Leape, 1984. "Wealth and Portfolio Composition: Theory and Evidence," NBER Working Papers 1468, National Bureau of Economic Research, Inc.
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    Cited by:
    1. R. Glenn Hubbard & Jonathan S. Skinner, 1996. "Assessing the Effectiveness of Saving Incentives," Journal of Economic Perspectives, American Economic Association, vol. 10(4), pages 73-90, Fall.
    2. Håkan Selin, 2010. "Marginal Tax Rates and Tax-Favoured Pension Savings of the Self-Employed - Evidence from Sweden," CESifo Working Paper Series 3059, CESifo Group Munich.
    3. Gary V. Engelhardt & Brigitte C. Madrian, 2004. "Employee Stock Purchase Plans," NBER Working Papers 10421, National Bureau of Economic Research, Inc.
    4. B. Douglas Bernheim, 1999. "Taxation and Saving," Working Papers 99007, Stanford University, Department of Economics.
    5. M. Antònia Monés & Eva Ventura, 1993. "Saving decisions and fiscal incentives: A Spanish panel based analysis," Economics Working Papers 41, Department of Economics and Business, Universitat Pompeu Fabra.
    6. Venti, Steven F & Wise, David A, 1990. "Have IRAs Increased U.S. Saving? Evidence from Consumer Expenditure Surveys," The Quarterly Journal of Economics, MIT Press, vol. 105(3), pages 661-98, August.
    7. Steven F. Venti & David A. Wise, 1987. "IRAs and Saving," NBER Chapters, in: The Effects of Taxation on Capital Accumulation, pages 7-52 National Bureau of Economic Research, Inc.

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