Taxes, Income, and Retirement Savings: Differences by Permanent and Transitory Income

26 Pages Posted: 9 May 2014

See all articles by Bradley Heim

Bradley Heim

Indiana University Bloomington - School of Public & Environmental Affairs (SPEA)

Ithai Lurie

U.S. Department of the Treasury, Office of Tax Analysis (OTA)

Date Written: July 2014

Abstract

This article examines the determinants of and benefits from saving for retirement in tax‐preferred accounts by permanent and transitory income levels. We find that higher incomes (both permanent and transitory) are associated with a greater probability to contribute and larger contributions. We also find that tax benefits for retirement savings increase strongly with income, although the increase is slightly smaller when taxpayers are ranked by their permanent (rather than current) income. In addition, we find that a large portion of the benefits from the Saver's Credit go to taxpayers who would not be eligible based on their permanent income. Finally, we find that recent tax changes (including the introduction of the Saver's Credit) significantly increased contributions among low‐income households, although the effect was centered among those with only transitorily low income.

JEL Classification: H24, H31, E21

Suggested Citation

Heim, Bradley and Lurie, Ithai, Taxes, Income, and Retirement Savings: Differences by Permanent and Transitory Income (July 2014). Contemporary Economic Policy, Vol. 32, Issue 3, pp. 592-617, 2014, Available at SSRN: https://ssrn.com/abstract=2434875 or http://dx.doi.org/10.1111/coep.12030

Bradley Heim (Contact Author)

Indiana University Bloomington - School of Public & Environmental Affairs (SPEA) ( email )

1315 East Tenth Street
Bloomington, IN 47405
United States

Ithai Lurie

U.S. Department of the Treasury, Office of Tax Analysis (OTA) ( email )

1500 Pennsylvania Ave., N.W.
Washington, DC 22203
United States

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