How Would 401(k) 'Rothification' Alter Saving, Retirement Security, and Inequality? / Vanya Horneff, Raimond Maurer, Olivia S. Mitchell.

Format:

Book

Author/Creator:

Horneff, Vanya.

Contributor:

National Bureau of Economic Research.

Maurer, Raimond.

Mitchell, Olivia S.

Series:

Working Paper Series (National Bureau of Economic Research) no. w26437.

NBER working paper series no. w26437

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

How Would 401

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2019.

Summary:

The US has long incentivized retirement saving in 401(k) and similar retirement accounts by permitting workers to defer taxes on contributions, levying them instead when retirees withdraw funds in retirement. This paper develops a dynamic life cycle model to show how and whether 'Rothification' - that is, taxing 401(k) contributions rather than payouts - would alter household saving, investment, and Social Security claiming patterns. We show that these changes differ importantly for low- versus higher-paid workers. We conclude that moving to a system that taxes pension contributions instead of withdrawals will lead to later retirement ages, particularly for the better-educated. It would also reduce work hours and lifetime tax payments and increase consumption inequality in retirement. In addition, we show how these behaviors would differ in a persistently low interest rate environment versus a more "normal" historical return world.

Notes:

Print version record

November 2019.