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Tax policy, lump-sum pension distributions, and household saving


  • Angela E. Chang


As 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.

Suggested Citation

  • Angela E. Chang, 1995. "Tax policy, lump-sum pension distributions, and household saving," Research Paper 9507, Federal Reserve Bank of New York.
  • Handle: RePEc:fip:fednrp:9507

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    Cited by:

    1. Olivia S. Mitchell & James F. Moore, "undated". "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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    Pensions ; Saving and investment ; Taxation;


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