This paper presents new information on the fraction of adjusted gross income, and of wages and salaries, that is reported by taxpayers in the top one half of one percent of the income distribution. This corresponds to roughly five hundred thousand households in the late 1990s. This paper relies on data from the Treasury's Individual Income Tax Model for the period 1960-1995. The definition of adjusted gross income is standardized, so that changes in the tax law do not affect the measured concentration of AGI. The results suggest that the share of AGI reported by the highest income households increased significantly between the early 1980s and the mid-1990s, with most of the increase taking place in the years immediately following the Tax Reform Act of 1986. While we find some evidence of transitory changes in the concentration of income around major tax changes, which may be the result of income retiming by high income taxpayers, re-timing does not seem to explain most of the changes since 1986.

Contributions to 401(k) plans are now the most important form of retirement saving. Since 401(k) plans were introduced in the early 1980’s, they have expanded rapidly and continuously. By 1998, roughly half of all households were eligible to participate in 401(k) plans, and more than 36 million workers made contributions to these employer-provided saving plans. In 1995, the last year for which the U.S. Department of Labor has released definitive data, 401(k) contributions amounted to $87.4 billion, or 55 percent of all contributions to employer-sponsored pension plans. The level of contributions, and their share of all pension contributions, is probably significantly higher today. The spread of 401(k) plans is the most important indicator of the move to personal retirement saving. In 1980, almost 92 percent of pension-plan contributions were to traditional employer-provided plans, and about 64 percent of these contributions were to conventional defined-benefit plans. Today, almost 60 percent of contributions are to personal retirement accounts, including 401(k), IRA, and Keogh plans. Including employerprovided, non-401(k) defined-contribution plans, over 76 percent of contributions are to plans that are controlled in large measure by individuals. These individuals make participation, contribution, asset-allocation, and withdrawal decisions. In this paper, we describe the likely importance of 401(k) assets for future older Americans and the effect of investment decisions on asset accumulation. We also examine the extent to which retirement assets may be affected by several decisions: preretirement withdrawals, management fees and expenses, contribution rates, and early retirement. Our analysis focuses on 401(k) saving, but applies more broadly to other forms of individual retirement saving.