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Do Tax Incentives Increase 401(k) Retirement Saving? Evidence from the Adoption of Catch-Up Contributions

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  • Matthew S. Rutledge
  • April Yanyuan Wu
  • Francis M. Vitagliano

Abstract

The U.S. government subsidizes retirement saving through 401(k) plans with $61.4 billion in tax expenditures annually, but the question of whether these tax incentives are effective in increasing saving remains unanswered. Using longitudinal U.S. Social Security Administration data on tax-deferred earnings linked to the Survey of Income and Program Participation, the project examines whether the “catch-up provision,” which was enacted in 2001 and allows workers over age 50 to contribute more to their 401(k) plans, has been effective in increasing earnings deferrals. Compared with similar workers under age 50, the study finds that contributions increased by $540 more among age-50-plus individuals who had approached the 401(k) tax-deferral limits prior to turning 50, suggesting that the older individuals respond to the expanded tax incentives. For this group, the elasticity of retirement savings to the tax incentive is quite high: a one-dollar increase in the tax-deferred limit leads to an immediate 49-cent increase in 401(k) contributions.

Suggested Citation

  • Matthew S. Rutledge & April Yanyuan Wu & Francis M. Vitagliano, 2014. "Do Tax Incentives Increase 401(k) Retirement Saving? Evidence from the Adoption of Catch-Up Contributions," Working Papers, Center for Retirement Research at Boston College wp2014-17, Center for Retirement Research.
    • Handle: RePEc:crr:crrwps:wp2014-17
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    Cited by:

    1. Qi Guan & Matthew S. Rutledge & April Yanyuan Wu & Francis M. Vitagliano, 2015. "Do Catch-Up Contributions Increase 401(k) Saving?," Issues in Brief ib2015-10, Center for Retirement Research.
    2. Goodman, Lucas, 2020. "Catching up or crowding out? The crowd-out effects of catch-up retirement contributions on non-retirement saving," Journal of Public Economics, Elsevier, vol. 188(C).
    3. Jun Feng, 2018. "Voluntary Retirement Savings: The Case of Australia," Journal of Family and Economic Issues, Springer, vol. 39(1), pages 2-18, March.
    4. Adam M. Lavecchia, 2018. "Do "Catch-Up Limits" Raise Retirement Saving? Evidence from a Regression Discontinuity Design," National Tax Journal, National Tax Association;National Tax Journal, vol. 71(1), pages 121-154, March.
    5. Marcinkiewicz Edyta, 2017. "Factors Affecting the Development of Voluntary Pension Schemes in CEE Countries: A Panel Data Analysis," Central European Economic Journal, Sciendo, vol. 3(50), pages 26-40, December.

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