Work

Do 401(k) contributions crowd out other personal saving?

Year: 1995

Type: article

Abstract: During the late 1980s, contributions to 401(k) plans eclipsed contributions to Individual Retirement Accounts (IRAs) as the leading form of tax-deferred individual retirement saving in the United States. In this paper we describe patterns of participation in 401(k) plans, contrast these patterns with IRA participation, and evaluate the net impact of 401(k) contributions on personal saving. We find that 401(k) participation conditional on eligibility exceeds 60% at all income levels. In contrast, IRA participation at the height of that program rose sharply with income. We use two methods to evaluate the net saving effect of 401(k) contributions on personal saving: we compare the financial assets of families who are eligible for 401(k) saving with the assets of those who are not eligible, and we consider the change over time in the assets of like groups of savers. We find little evidence that 401(k) contributions substitute for other forms of personal saving, including IRA contributions.

Source: Journal of Public Economics

DOI: 10.1016/0047-2727(94)01462-w

Authors: James M. Poterba, Steven F. Venti, David A. Wise

Institutions: National Bureau of Economic Research, Massachusetts Institute of Technology, Dartmouth College, Harvard University

Language: English

Topic: Financial Literacy, Pension, Retirement Analysis

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: hybrid

Estimated APC paid: $4,510

Funders: National Science Foundation, Center for Advanced Study in the Behavioral Sciences, Stanford University