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Should the Government Be Paying Investment Fees on $3 Trillion of Tax-Deferred Retirement Assets?

Author

Listed:
  • Mattia Landoni
  • Stephen P Zeldes

Abstract

Under standard assumptions, individuals and the government are indifferent between traditional tax-deferred retirement accounts and “front-loaded” (Roth) accounts. Adding investment fees to this benchmark, individuals are still indifferent, but the government is not. We show that under weak conditions firms charge equal percent fees under both systems, yielding higher dollar fees under Traditional. We estimate that tax deferral increases demand for asset management services by $3.8 trillion, costing the government $23.4 billion in annual fees. In a general equilibrium differentiated-product model, tax deferral produces a larger asset management industry, higher taxes, and lower social welfare.

Suggested Citation

  • Mattia Landoni & Stephen P Zeldes, 2025. "Should the Government Be Paying Investment Fees on $3 Trillion of Tax-Deferred Retirement Assets?," The Review of Financial Studies, Society for Financial Studies, vol. 38(4), pages 1014-1066.
    • Handle: RePEc:oup:rfinst:v:38:y:2025:i:4:p:1014-1066.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhae070
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    More about this item

    Keywords

    JEL G11; G23; G28; G51; H21; J32;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions

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