The Taxation of Pensions: A Shelter can Become a Trap
AbstractPensions are widely thought to be attractive tax shelters which encourage saving for retirement. They allow people to save before-tax dollars and to compound investment returns without current taxation. However, the taxation of pension assets as they are distributed in retirement or as they pass through an estate may turn the shelter into a trap, at least for large pension accumulations. Pension distributions can face marginal tax rates as high as 61.5 percent; pension assets passing through an estate can face virtually confiscatory marginal tax rates between 92 and 99 percent. The analysis of this paper shows the circumstances under which these extraordinarily high marginal tax rates will be encountered. They are not limited to the rich. In fact, people of modest incomes who participate in a pension plan over a long career may face such rates. The paper presents a comprehensive examination of the taxation of pensions and discusses the optimal responses of households to the incentives created by the tax system.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5815.
Date of creation: Nov 1996
Date of revision:
Publication status: published as Frontiers in the Economics of Aging. Edited by David Wise, Chicago: The University of Chicago Press, 1998, pp. 173-212.
Note: AG PE
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Web page: http://www.nber.org
More information through EDIRC
Other versions of this item:
- John B. Shoven & David A. Wise, 1998. "The Taxation of Pensions: A Shelter Can Become a Trap," NBER Chapters, in: Frontiers in the Economics of Aging, pages 173-212 National Bureau of Economic Research, Inc.
- H2 - Public Economics - - Taxation, Subsidies, and Revenue
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- N. Gregory Mankiw & James M. Poterba, 1996.
"Stock Market Yields and the Pricing of Municipal Bonds,"
NBER Working Papers
5607, National Bureau of Economic Research, Inc.
- 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.
- Steven F. Venti & David A. Wise, 2001.
"Choice, Chance, and Wealth Dispersion at Retirement,"
in: Aging Issues in the United States and Japan, pages 25-64
National Bureau of Economic Research, Inc.
- Steven F. Venti & David A. Wise, 2000. "Choice, Chance, and Wealth Dispersion at Retirement," NBER Working Papers 7521, National Bureau of Economic Research, Inc.
- James M. Poterba & Andrew Samwick, 2001.
"Household Portfolio Allocation over the Life Cycle,"
in: Aging Issues in the United States and Japan, pages 65-104
National Bureau of Economic Research, Inc.
- James M. Poterba & Andrew A. Samwick, 1997. "Household Portfolio Allocation Over the Life Cycle," NBER Working Papers 6185, National Bureau of Economic Research, Inc.
- Power, Laura & Rider, Mark, 2002. "The effect of tax-based savings incentives on the self-employed," Journal of Public Economics, Elsevier, vol. 85(1), pages 33-52, July.
- 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.
- Poterba, James, 2001. "Estate and gift taxes and incentives for inter vivos giving in the US," Journal of Public Economics, Elsevier, vol. 79(1), pages 237-264, January.
- James Poterba, 1998. "Estate and Gift Taxes and Incentives for Inter Vivos Giving in the United States," NBER Working Papers 6842, National Bureau of Economic Research, Inc.
- Poterba, James M., 1998. "Public Finance and Public Choice," National Tax Journal, National Tax Association, vol. 51(n. 2), pages 391-96, June.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.