Do Required Minimum Distribution 401(K) Rules Matter, and for Whom? Insights from a Lifecycle Model

40 Pages Posted: 22 Feb 2021 Last revised: 7 May 2022

See all articles by Vanya Horneff

Vanya Horneff

Leibniz Institute for Financial Research SAFE

Raimond Maurer

Goethe University Frankfurt - Finance Department

Olivia S. Mitchell

University of Pennsylvania - The Wharton School; University of Pennsylvania - The Wharton School, Pension Research Council; National Bureau of Economic Research (NBER)

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Date Written: February 2021

Abstract

Tax-qualified vehicles helped U.S. private-sector workers accumulate $25Tr in retirement assets. An often-overlooked important institutional feature shaping decumulations from these retirement plans is the “Required Minimum Distribution” (RMD) regulation, requiring retirees to withdraw a minimum fraction from their retirement accounts or pay excise taxes on withdrawal shortfalls. Our calibrated lifecycle model measures the impact of RMD rules on financial behavior of heterogeneous households during their worklives and retirement. We show that proposed reforms to delay or eliminate the RMD rules should have little effects on consumption profiles but more impact on withdrawals and tax payments for households with bequest motives.

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Suggested Citation

Horneff, Vanya and Maurer, Raimond and Mitchell, Olivia S., Do Required Minimum Distribution 401(K) Rules Matter, and for Whom? Insights from a Lifecycle Model (February 2021). NBER Working Paper No. w28490, Available at SSRN: https://ssrn.com/abstract=3790228

Vanya Horneff (Contact Author)

Leibniz Institute for Financial Research SAFE ( email )

(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

Raimond Maurer

Goethe University Frankfurt - Finance Department ( email )

Grüneburgplatz 1
House of Finance
Frankfurt, 60323
Germany

Olivia S. Mitchell

University of Pennsylvania - The Wharton School ( email )

Philadelphia, PA 19104-6365
United States

University of Pennsylvania - The Wharton School, Pension Research Council ( email )

3302 Steinberg Hall-Dietrich Hall
3620 Locust Walk
Philadelphia, PA 19104-6302
United States

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

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