The Effect of Required Minimum Distributions on Intergenerational Transfers

Abstract

How do households use retirement savings accounts in retirement? The answer to this question is important for tax policy pertaining to retirement savings. I shed light on this question by studying how households respond to Required Minimum Distribution (RMD) regulations, which mandate withdrawals from retirement accounts upon reaching a specified age. Using data from the Health and Retirement Study and a regression discontinuity design, I estimate the causal effects of aging into RMD regulations. First, I establish the direct effects of RMDs in my setting and show a sharp increase in withdrawals from Individual Retirement Accounts (IRAs). Next, I provide new evidence on the indirect effects of RMDs and show a concurrent, discontinuous increase in inter vivos transfers. The results indicate that some households ultimately use IRAs to facilitate intergenerational gifts, holding wealth in the tax-advantaged accounts until required to take distributions and then passing resources to children.

Keywords: Retirement Policy, Tax Policy, Intergenerational Transfers

JEL Classification: H24, D14, D64, J26, J14