TAXES, INCOME, AND RETIREMENT SAVINGS: DIFFERENCES BY PERMANENT AND TRANSITORY INCOME

type="main" xml:lang="en"> <p>This article examines the determinants of and benefits from saving for retirement in tax-preferred accounts by permanent and transitory income levels. We find that higher incomes (both permanent and transitory) are associated with a greater probability to contribute and larger contributions. We also find that tax benefits for retirement savings increase strongly with income, although the increase is slightly smaller when taxpayers are ranked by their permanent (rather than current) income. In addition, we find that a large portion of the benefits from the Saver's Credit go to taxpayers who would not be eligible based on their permanent income. Finally, we find that recent tax changes (including the introduction of the Saver's Credit) significantly increased contributions among low-income households, although the effect was centered among those with only transitorily low income. (JEL H24, H31, E21)