Working Paper: NBER ID: w28490
Authors: 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.
Keywords: Required Minimum Distribution; 401(k) rules; Lifecycle model; Retirement assets; Financial behavior
JEL Codes: D14; G11; G5; G51; H24
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| RMD rules (J26) | withdrawal behavior for retirees with a bequest motive (D14) |
| RMD rules (J26) | overall tax liability for those with a bequest motive (H24) |
| RMD rules (J26) | withdrawal behavior for individuals without a bequest motive (D15) |