Portfolio choice in tax-deferred and Roth-type savings accounts

Richard L. Johnson

No RWP 03-08, Research Working Paper from Federal Reserve Bank of Kansas City

Abstract: This paper uses numerical methods to compare optimal portfolios in tax-deferred and Roth-type savings accounts. Income and payroll taxes affect optimal portfolios in tax-deferred and Roth-type plans differently. For workers with assets in only one type of plan, the optimal equity share in a tax-deferred account could be higher or lower than in a Roth, depending on initial wealth. The differences in optimal portfolios between plans are large at short investment horizons but smaller at longer horizons. This paper also studies the 'asset location' decision of workers with assets in plans of both types.

Keywords: Individual retirement accounts; Retirement; 401(k) plans (search for similar items in EconPapers)
Date: 2003
New Economics Papers: this item is included in nep-fin and nep-rmg
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