The impact of withdrawal penalties on retirement savings

Ellen Stuart and Victoria L. Bryant

Journal of Public Economics, 2024, vol. 232, issue C

Abstract: Tax-benefited retirement accounts have features designed to encourage saving, including a penalty for withdrawing before age 5912. Account holders also face a penalty for failing to take required minimum withdrawals after age 72. Using a bunching analysis, we estimate that these penalties cause over 17% of traditional IRA holders to change their withdrawal timing each year, shifting almost $60 billion of distributions annually. We estimate a dynamic life-cycle model to analyze the effect of changing these penalties. For both penalties, we find alternative combinations of age threshold and penalty rate that lead to increased average welfare and lifetime tax remittances.

Keywords: Retirement savings; Retirement income; Tax penalties (search for similar items in EconPapers)
JEL-codes: D15 H2 J32 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0047272724000197
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:pubeco:v:232:y:2024:i:c:s0047272724000197

DOI: 10.1016/j.jpubeco.2024.105083

Access Statistics for this article

Journal of Public Economics is currently edited by R. Boadway and J. Poterba

More articles in Journal of Public Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().