Distributional Effects of Defined Contribution Plans and Individual Retirement Accounts

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Distributional Effects of Defined Contribution Plans and Individual Retirement Accounts

This paper incorporates retirement saving incentives into the Tax Policy Center microsimulation model and analyzes the distributional effects of current tax preferences for saving. As a share of income, tax-preferred saving incentives provide the largest benefits to households with income between $75,000 and $500,000, roughly the 80th to 99th percentile of the income distribution. In 2004, the top 20 percent of tax filing units by income will receive 70 percent of the tax benefits from new contributions to defined contribution plans and almost 60 percent of IRA tax benefits.

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