Tax policy, lump-sum pension distributions, and household saving
AbstractAs of May 1988, over 8 million workers had received their pension benefits as lump-sum distributions (LSDs) when they changed jobs. In 1986 Congress imposed a 10% tax penalty on the amount of LSDs not rolled over into tax-deferred instruments. This paper examines the effects of this tax penalty on the rollover decisions of LSD recipients. The penalty increases the probability of rollover among higher-income recipients; an increase of 1 percentage point in the penalty is estimated to increase the probability of rollover by 1.1 percentage point. However, the penalty has not affected the rollover decisions of lower-income recipients, who are more likely to be liquidity-constrained.
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Bibliographic InfoPaper provided by Federal Reserve Bank of New York in its series Research Paper with number 9507.
Date of creation: 1995
Date of revision:
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- Olivia S. Mitchell & James F. Moore, 1997.
"Retirement Wealth Accumulation and Decumulation: New Developments and Outstanding Opportunities,"
Center for Financial Institutions Working Papers
97-12, Wharton School Center for Financial Institutions, University of Pennsylvania.
- Olivia S. Mitchell & James F. Moore, 1997. "Retirement Wealth Accumulation and Decumulation: New Developments and Outstanding Opportunities," NBER Working Papers 6178, National Bureau of Economic Research, Inc.
- Olivia S. Mitchell & James F. Moore, . "Retirement Wealth Accumulation and Decumulation: New Developments and Outstanding Opportunities," Pension Research Council Working Papers 97-8, Wharton School Pension Research Council, University of Pennsylvania.
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