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IRAs and Saving

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Author Info
Steven F. Venti
David A. Wise

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Abstract

Increasing current Individual Retirement Account (IRA) limits would lead to substantial increases in tax-deferred saving according to evidence in the paper, based on the 1983 Survey of Consumer Finances. For example, the recentTreasury Plan would increase IRA Contributions by about 30 percent. The primary focus of the paper, however, is the effect of limit increases on othersaving. How much of the IRA increase would be offset by reduction in non-tax-deferred saving? The weight of the evidence suggests that very little of the increase would be offset by reduction in other financial assets,possibly 10 to 20 percent. The estimates suggest that 45 to 55 percent of the IRA increase would be funded by reduction in expenditure for other goods and services, and about 35 percent by reduced taxes. The analysis rests on a savings decision structure recognizing the constraint that the IRA limit places on the allocation of current income; it is a constrained optimization model with the IRA limit the principle constraint. The evidence also suggests substantial variation in saving behavior among segments of the population. In addition, it appears that IRAs do not serve as a substitute fo rprivate pension plans. Thus the legislative goal of disproportionately increasing retirement saving among persons without pension plans is apparently not being realized. But the more general goal of increasing general saving is.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1879.

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Date of creation: Mar 1986
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Handle: RePEc:nbr:nberwo:1879

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  1. William F. Bassett & Michael J. Fleming & Anthony P. Rodrigues, 1998. "How workers use 401(k) plans: the participation, contribution, and withdrawal decisions," Staff Reports 38, Federal Reserve Bank of New York. [Downloadable!]
  2. Eric M. Engen & William G. Gale & John Karl Scholz, 1996. "The Effects of Tax-Based Saving Incentives On Saving and Wealth," NBER Working Papers 5759, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Hubbard, R Glenn & Skinner, Jonathan S, 1996. "Assessing the Effectiveness of Saving Incentives," Journal of Economic Perspectives, American Economic Association, vol. 10(4), pages 73-90, Fall. [Downloadable!] (restricted)
    Other versions:
  4. Carol C. Bertaut & Michael Haliassos, 1996. "Precautionary Portfolio Behavior from a Life-Cycle Perspective," Finance 9604001, EconWPA. [Downloadable!]
    Other versions:
  5. Patric H. Hendershott, 1988. "The Tax Reform Act Of 1986 And Economic Growth," NBER Working Papers 2553, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Orazio P. Attanasio & Thomas C. DeLeire, 1994. "IRAs and Household Saving Revisited: Some New Evidence," NBER Working Papers 4900, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. Alan L. Gustman & F. Thomas Juster, 1995. "Income and Wealth of Older American Households: Modeling Issues for Public Policy Analysis," NBER Working Papers 4996, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  8. James M. Poterba & Steven F. Venti & David A. Wise, 1995. "The Effects of Special Saving Programs on Saving and Wealth," NBER Working Papers 5287, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  9. Daniel Feenberg & Jonathan Skinner, 1989. "Sources of IRA Saving," NBER Working Papers 2845, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
    • Daniel Feenberg & Jonathan Skinner, 1989. "Sources of IRA Saving," NBER Chapters, in: Tax Policy and the Economy, Volume 3, pages 25-46 National Bureau of Economic Research, Inc. [Downloadable!]
  10. Poterba, James M & Venti, Steven F & Wise, David A, 1996. "How Retirement Saving Programs Increase Saving," Journal of Economic Perspectives, American Economic Association, vol. 10(4), pages 91-112, Fall. [Downloadable!] (restricted)
  11. Steven Morling & Robert Subbaraman, 1995. "Superannuation and Saving," RBA Research Discussion Papers rdp9511, Reserve Bank of Australia. [Downloadable!]
  12. Engen, Eric M & Gale, William G & Scholz, John Karl, 1996. "The Illusory Effects of Saving Incentives on Saving," Journal of Economic Perspectives, American Economic Association, vol. 10(4), pages 113-38, Fall. [Downloadable!] (restricted)
  13. Gaobo Pang & University of Maryland, 2006. "Tax-Deferred Savings and Early Retirement," Computing in Economics and Finance 2006 31, Society for Computational Economics. [Downloadable!]
    Other versions:
  14. Jonathan Skinner, 1991. "Individual Retirement Accounts: A Review of the Evidence," NBER Working Papers 3938, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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