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Do ‘Catch-up Limits’ Raise Retirement Saving? Evidence from a Regression Discontinuity Design

Adam Lavecchia ()

No 1712E, Working Papers from University of Ottawa, Department of Economics

Abstract: This paper studies the effect of raising contribution limits on retirement saving by exploiting the ‘catch-up limit’ provision, a rule which allows those over the age of 50 to make higher IRA and 401(k) contributions than those under 50. Using an age-related regression discontinuity design, I find that eligibility for ‘catch-up limits’ leads to a large increase in total tax-deferred contributions for those without access to a 401(k) plan. This is driven by a 25 percent increase in average IRA contributions and a 21 percent increase in the likelihood of making an IRA contribution. I also find no significant effects on overall 401(k) contributions. The findings suggest that, contrary to the neoclassical life-cycle model, the response to eligibility for ‘catchup limits’ was not limited to constrained savers.

Keywords: Retirement saving; Tax-preferred savings accounts; Contribution limits; Regression discontinuity design (search for similar items in EconPapers)
JEL-codes: D14 H31 J26 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-age and nep-pbe
Date: 2017
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