Valuing Assets in Retirement Saving Accounts

James Poterba

No 10395, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: 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 Taxes and in some cases penalties are due when assets are withdrawn from some retirement saving plans.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.

JEL-codes: H24 (search for similar items in EconPapers)
Date: 2004-03
New Economics Papers: this item is included in nep-acc
Note: AG AP PE
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

Published as Poterba, James. "Valuing Assets In Retirement Saving Accounts," National Tax Journal, 2004, v57(2,Jun), 489-512.

Downloads: (external link)
http://www.nber.org/papers/w10395.pdf (application/pdf)

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:nbr:nberwo:10395

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w10395

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().