Do Tax Deferred Accounts Improve Lifecycle Savings? Experimental Evidence

John Duffy; YUE LI

doi:10.1162/rest_a_01475

Do Tax Deferred Accounts Improve Lifecycle Savings? Experimental Evidence

¹ Department of Economics, University of California, Irvine and ISER Osaka University [email protected] · ² Department of Economics, University at Albany, SUNY [email protected]

The Review of Economics and Statistics 2024

In an individual decision-making experiment, we investigate the impact of Tax Deferred Accounts (TDAs). We design six treatments to study various channels through which TDAs may affect decisions. Across both student and Mturk samples, we consistently find that TDAs significantly increase retirement wealth compared to environments with only one non-tax advantaged, liquid saving account. This increase is primarily explained by the requirement of making retirement savings decisions precede consumption decisions. Educating participants by providing a tax calculator has minimal effects. Our results highlight the effectiveness of TDAs in enhancing retirement preparedness and the significance of the order of consumption/savings decisions.

DOI: 10.1162/rest_a_01475
Pages: 1-47
Language: en
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