Determinants of the Choice Between Roth and Deductible IRAs
1 Pages Posted: 7 Oct 2006
This study examines tax and non-tax determinants of the choice between Roth and deductible Individual Retirement Accounts (IRAs). I find evidence that higher current tax rates relative to average tax rates are positively, but modestly, related to the probability that a taxpayer will contribute to a deductible IRA rather than a Roth IRA. I also find that taxpayers with greater liquidity are more likely to choose a Roth IRA, which is the option with a higher effective contribution limit. The results relate to the question of whether taxpayers behave in a tax-efficient manner and the behavioral response to statutory tax rate changes.
Keywords: Individual Retirement Accounts, taxes
JEL Classification: H24, E21
Suggested Citation: Suggested Citation