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Do 401(k) Contributions Crowd Out Other Persoanl Saving?

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  • James M. Poterba
  • Steven F. Venti
  • David A. Wise

Abstract

During the late 1980s. contributions to 401(k) plans eclipsed contributions to Individual Retirement Accounts as the leading form of tax-deferred individual retirement saving. This paper uses data from the 1984. 1987. and 1991 Surveys of Income and Program Participation to describe patterns of participation in and contributions to 401(k) plans. and to evaluate the net impact of these contributions on personal saving. We find that 401(k) participation conditional on eligibility exceeds sixty percent at all income levels. This pattern contrasts with Individual Retirement Accounts in the early 1980s. which exhibited a sharply rising profile of participation across income groups. We study the net effect of 401(k) contributions on personal saving by comparing the growth of non-401(k) assets for contributors and noncontributors. and by comparing the level of wealth for families who are eligible for 401(k)s with that of those who are not. We find little evidence that 401(k) contributions substitute for other forms of private saving. We also explore the substitutability of 401(k) contributions for IRA contributions. and revisit the question of whether IRAs substitute for other types of saving. Our findings suggest little substitution on either margin.

Suggested Citation

  • James M. Poterba & Steven F. Venti & David A. Wise, 1993. "Do 401(k) Contributions Crowd Out Other Persoanl Saving?," NBER Working Papers 4391, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:4391
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    References listed on IDEAS

    as
    1. Gale, William G & Scholz, John Karl, 1994. "IRAs and Household Saving," American Economic Review, American Economic Association, vol. 84(5), pages 1233-1260, December.
    2. B. Douglas Bernheim & John B. Shoven, 1988. "Pension Funding and Saving," NBER Chapters,in: Pensions in the U.S. Economy, pages 85-114 National Bureau of Economic Research, Inc.
    3. David A. Wise & Steven F. Venti, 1993. "The Wealth of Cohorts: Retirement Saving and the Changing Assets of Older Americans," NBER Working Papers 4600, National Bureau of Economic Research, Inc.
    4. Steven F. Venti & David A. Wise, 1991. "The Saving Effect of Tax-deferred Retirement Accounts: Evidence from SIPP," NBER Chapters,in: National Saving and Economic Performance, pages 103-130 National Bureau of Economic Research, Inc.
    5. Shefrin, Hersh M & Thaler, Richard H, 1988. "The Behavioral Life-Cycle Hypothesis," Economic Inquiry, Western Economic Association International, vol. 26(4), pages 609-643, October.
    6. Steven F. Venti & David A. Wise, 1990. "Have IRAs Increased U. S. Saving?: Evidence from Consumer Expenditure Surveys," The Quarterly Journal of Economics, Oxford University Press, vol. 105(3), pages 661-698.
    7. Hilary W. Hoynes & Daniel L. McFadden, 1996. "The Impact of Demographics on Housing and Nonhousing Wealth in the United States," NBER Chapters,in: The Economic Effects of Aging in the United States and Japan, pages 153-194 National Bureau of Economic Research, Inc.
    8. James M. Poterba & Steven F. Venti, 1994. "401(k) Plans and Tax-Deferred Saving," NBER Chapters,in: Studies in the Economics of Aging, pages 105-142 National Bureau of Economic Research, Inc.
    9. Hausman, Jerry A & Poterba, James M, 1987. "Household Behavior and the Tax Reform Act of 1986," Journal of Economic Perspectives, American Economic Association, vol. 1(1), pages 101-119, Summer.
    10. Leslie E. Papke, 1995. "Participation in and Contributions to 401(k) Pension Plans: Evidence from Plan Data," Journal of Human Resources, University of Wisconsin Press, vol. 30(2), pages 311-325.
    11. Andrea L. Kusko & James M. Poterba & David W. Wilcox, 1994. "Employee Decisions with Respect to 401(k) Plans: Evidence From Individual-Level Data," NBER Working Papers 4635, National Bureau of Economic Research, Inc.
    12. Steven F. Venti & David A. Wise, 1992. "Government Policy and Personal Retirement Saving," NBER Chapters,in: Tax Policy and the Economy, Volume 6, pages 1-42 National Bureau of Economic Research, Inc.
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    More about this item

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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