Return Heterogeneity in Retirement Accounts

48 Pages Posted: 20 Dec 2021 Last revised: 14 May 2024

See all articles by Lorenzo Bretscher

Lorenzo Bretscher

Swiss Finance Institute - HEC Lausanne; Centre for Economic Policy Research (CEPR)

Francisco Gomes

London Business School

Riccardo Sabbatucci

Stockholm School of Economics; Swedish House of Finance

Andrea Tamoni

Rutgers, The State University of New Jersey - Rutgers Business School at Newark & New Brunswick

Date Written: December 12, 2021

Abstract

We study the performance of investment retirement accounts (IRAs) from 2004 through 2018. We document novel evidence of large return heterogeneity across U.S. income groups, and we provide estimates of its impact on wealth inequality. IRAs owned by high-income individuals substantially outperform those held by low-income groups, with the return differential nearly tripling in "tax-free returns" Roth IRAs. These returns cannot be matched by equity market returns, but are consistent with high-income individuals having exposure to private assets.

Keywords: Roth IRA; Traditional IRA; Return Heterogeneity; Wealth Inequality; Retirement Accounts

JEL Classification: G50, G51, J32

Suggested Citation

Bretscher, Lorenzo and Gomes, Francisco and Sabbatucci, Riccardo and Tamoni, Andrea, Return Heterogeneity in Retirement Accounts (December 12, 2021). Swedish House of Finance Research Paper No. 22-04, Available at SSRN: https://ssrn.com/abstract=3989150 or http://dx.doi.org/10.2139/ssrn.3989150

Lorenzo Bretscher

Swiss Finance Institute - HEC Lausanne ( email )

Chavannes-près-Renens, Vaud
Switzerland
1015 (Fax)

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Francisco Gomes

London Business School ( email )

Finance Department
Sussex Place - Regent's Park
London NW1 4SA
United Kingdom

HOME PAGE: http://sites.google.com/view/francisco-gomes/home

Riccardo Sabbatucci (Contact Author)

Stockholm School of Economics ( email )

PO Box 6501
Stockholm, 11383
Sweden

Swedish House of Finance

Drottninggatan 98
111 60 Stockholm
Sweden

Andrea Tamoni

Rutgers, The State University of New Jersey - Rutgers Business School at Newark & New Brunswick ( email )

1 Washington Park
Newark, NJ 07102
United States

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