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Taxation of Saving for Retirement: Current Rules and Alternative Reform Approaches

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Publication Date: April 2009

Publisher(s): Tax Policy Center

Author(s): Eric Toder

Special Collection: John D. and Catherine T. MacArthur Foundation

Topic: Economics (Economic theory)

Keywords: Retirement/Pensions; Taxes and Social Programs; Tax Reform; Taxes and Social Policy

Type: Report

Abstract:

Most advanced countries exempt returns to retirement saving from income tax, but private saving rates are falling and many people are saving too little for retirement. There is a trade-off between the goals of promoting wide participation in retirement saving plans and allowing more choice to employees. In the United States, purely employer funded plans have been replaced by plans that rely more on voluntary employee contributions, while private saving has declined. Two approaches that may promote more retirement saving are refundable tax credits for low-income workers and rules that encourage or require automatic enrollment in retirement saving plans.