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Individual Retirement Accounts: A Review of the Evidence

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  • Jonathan Skinner

Abstract

Recent legislative proposals have included restoring Individual Retirement Accounts (IRAs) to their pre-1987 eligibility rules. Whether IRAs are simply tax windfalls with no effect on saving, or whether IRAs stimulate saving, is a crucial issue in evaluating the effectiveness of such proposals. In this paper, I review the previous literature on IRAs as well as presenting new evidence on the saving behavior of IRA contributors. In brief, IRA contributors are wealthier and older than the general population. There is no clear consensus from structural economic models on whether IRA contributions are new saving or old, shuffled, saving. Nevertheless, IRA contributors during the 1980s were remarkably active savers. For example, the typical IRA contributor was estimated to hav~ increased total financial wealth in real terms by 71 percent between 1982-86. Individual Retirement Accounts may have induced saving through psychological factors not normally present in orthodox economic models, but evidence on such factors is speculative rather than conclusive.

Suggested Citation

  • Jonathan Skinner, 1991. "Individual Retirement Accounts: A Review of the Evidence," NBER Working Papers 3938, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:3938
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    Cited by:

    1. Smith, Karen E. & Johnson, Richard W. & Muller, Leslie A., 2004. "Deferring Income in Employer–Sponsored Retirement Plans: The Dynamics of Participant Contributions," National Tax Journal, National Tax Association;National Tax Journal, vol. 57(3), pages 639-670, September.
    2. Charles Mullin & Tomas Philipson, 1997. "The Future of Old-Age Longevity: Competitive Pricing of Morality Contingent Claims," University of Chicago - George G. Stigler Center for Study of Economy and State 134, Chicago - Center for Study of Economy and State.

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