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Do Required Minimum Distribution 401(k) Rules Matter, and For Whom? Insights from a Lifecycle Model

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  • Vanya Horneff
  • Raimond Maurer
  • Olivia S. Mitchell

Abstract

Tax-qualified vehicles helped U.S. private-sector workers accumulate $25Tr in retirement assets. An often-overlooked important institutional feature shaping decumulations from these retirement plans is the “Required Minimum Distribution” (RMD) regulation, requiring retirees to withdraw a minimum fraction from their retirement accounts or pay excise taxes on withdrawal shortfalls. Our calibrated lifecycle model measures the impact of RMD rules on financial behavior of heterogeneous households during their worklives and retirement. We show that proposed reforms to delay or eliminate the RMD rules should have little effects on consumption profiles but more impact on withdrawals and tax payments for households with bequest motives.

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  • Vanya Horneff & Raimond Maurer & Olivia S. Mitchell, 2021. "Do Required Minimum Distribution 401(k) Rules Matter, and For Whom? Insights from a Lifecycle Model," NBER Working Papers 28490, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:28490
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    Cited by:

    1. Leganza, Jonathan M., 2024. "The effect of required minimum distributions on intergenerational transfers," Journal of Public Economics, Elsevier, vol. 232(C).
    2. Stuart, Ellen & Bryant, Victoria L., 2024. "The impact of withdrawal penalties on retirement savings," Journal of Public Economics, Elsevier, vol. 232(C).
    3. Goda, Gopi Shah & Jones, Damon & Ramnath, Shanthi, 2022. "Temporary and permanent effects of withdrawal penalties on retirement savings accounts✩," Journal of Public Economics, Elsevier, vol. 215(C).

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    More about this item

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G5 - Financial Economics - - Household Finance
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies

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