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Optimal savings with taxable and tax-deferred accounts


Review of Economic Dynamics



Authors / Editors

Gomes F;Michaelides A;Polkovnichenko V


Publication Year



We solve and estimate a life-cycle model with earnings risk and liquidity constraints in the presence of tax-deferred retirement accounts (TDAs). We explicitly consider two very different types of households (with TDAs): direct and indirect stockholders. The latter hold stocks only through TDAs and, consistent with the data, save considerably less than the former, who hold stocks both inside and outside these accounts. We find that TDAs promote higher wealth accumulation but only marginally higher net savings. Consumption increases mostly during retirement, as desired, but the effect is largest for those households with higher savings rates already.


Tax-deferred accounts; Retirement savings; Liquidity constraints; Portfolio choice; Uninsurable earnings risk

Publication Research Centre

Institute of Finance and Accounting

Available on ECCH


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