Valuing Assets in Retirement Saving Accounts

39 Pages Posted: 9 Apr 2004 Last revised: 28 Apr 2023

See all articles by James M. Poterba

James M. Poterba

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

Multiple version iconThere are 2 versions of this paper

Date Written: March 2004


Many studies compare household balances in tax-deferred retirement accounts such as 401(k) plans with financial assets held outside these accounts, but these different asset components are not directly comparable. Taxes and in some cases penalties are due when assets are withdrawn from some retirement saving plans. These factors imply that a dollar held inside a retirement account may be less valuable in supporting retirement income than a dollar held in a similar asset outside these accounts. This is particularly important for households that are considering withdrawing assets from the tax-deferred accounts in the near future. For households with long deferral horizons, the opportunity for tax-free compound returns in retirement accounts can permit a dollar inside such an account to support more retirement consumption than a dollar outside such accounts, even though the account principal will be taxed on distribution. This paper illustrates the potential differences in the retirement support value of a dollar of invested in a bond, or in corporate stock, inside and outside tax-deferred accounts. It draws on a range of data sources to calibrate the value of the tax burden, and the benefit of compound growth, for assets held in retirement accounts, and describes the differences in relative valuation for households of different ages.

Suggested Citation

Poterba, James M. and Poterba, James M., Valuing Assets in Retirement Saving Accounts (March 2004). NBER Working Paper No. w10395, Available at SSRN:

James M. Poterba (Contact Author)

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Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

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