Do 401(K) Contributions Crowd Out Other Persoanl Saving?

58 Pages Posted: 5 Jan 2007 Last revised: 19 Jul 2010

See all articles by James M. Poterba

James M. Poterba

National Bureau of Economic Research (NBER); Massachusetts Institute of Technology (MIT) - Department of Economics

Steven F. Venti

Dartmouth College - Department of Economics; National Bureau of Economic Research (NBER)

David A. Wise

National Bureau of Economic Research (NBER); Harvard University - Harvard Kennedy School (HKS)

Date Written: June 1993

Abstract

During the late 1980s. contributions to 401(k) plans eclipsed contributions to Individual Retirement Accounts as the leading form of tax-deferred individual retirement saving. This paper uses data from the 1984. 1987. and 1991 Surveys of Income and Program Participation to describe patterns of participation in and contributions to 401(k) plans. and to evaluate the net impact of these contributions on personal saving. We find that 401(k) participation conditional on eligibility exceeds sixty percent at all income levels. This pattern contrasts with Individual Retirement Accounts in the early 1980s. which exhibited a sharply rising profile of participation across income groups. We study the net effect of 401(k) contributions on personal saving by comparing the growth of non-401(k) assets for contributors and noncontributors. and by comparing the level of wealth for families who are eligible for 401(k)s with that of those who are not. We find little evidence that 401(k) contributions substitute for other forms of private saving. We also explore the substitutability of 401(k) contributions for IRA contributions. and revisit the question of whether IRAs substitute for other types of saving. Our findings suggest little substitution on either margin.

Suggested Citation

Poterba, James M. and Venti, Steven F. and Wise, David A., Do 401(K) Contributions Crowd Out Other Persoanl Saving? (June 1993). NBER Working Paper No. w4391. Available at SSRN: https://ssrn.com/abstract=480220

James M. Poterba (Contact Author)

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Steven F. Venti

Dartmouth College - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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David A. Wise

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Harvard University - Harvard Kennedy School (HKS)

79 John F. Kennedy Street
Cambridge, MA 02138
United States

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