TY  - JOUR
AU  - Shoven,John B.
AU  - Wise,David A.
TI  - The Taxation of Pensions: A Shelter can Become a Trap
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 5815
PY  - 1996
Y2  - November 1996
UR  - http://www.nber.org/papers/w5815
L1  - http://www.nber.org/papers/w5815.pdf
N1  - Author contact info:
John B. Shoven
Department of Economics
579 Serra Mall at Galvez Street
Stanford, CA 94305-6015
Tel: 650/723-3273
Fax: 650/723-8611
E-Mail: shoven@stanford.edu

David A. Wise
NBER
1050 Massachusetts Avenue
Cambridge, MA   02138
E-Mail: dwise@nber.org
M1  - published as John B. Shoven, David A. Wise. "The Taxation of Pensions: A Shelter Can Become a Trap," in David A. Wise, editor, "Frontiers in the Economics of Aging" University of Chicago Press (1998)

M2  - featured in NBER digest on 1997-05-01
AB  - Pensions are widely thought to be attractive tax shelters which encourage saving for retirement.  They allow people to save before-tax dollars and to compound investment returns without current taxation.  However, the taxation of pension assets as they are distributed in retirement or as they pass through an estate may turn the shelter into a trap, at least for large pension accumulations.  Pension distributions can face marginal tax rates as high as 61.5 percent; pension assets passing through an estate can face virtually confiscatory marginal tax rates between 92 and 99 percent.  The analysis of this paper shows the circumstances under which these extraordinarily high marginal tax rates will be encountered.  They are not limited to the rich.  In fact, people of modest incomes who participate in a pension plan over a long career may face such rates.  The paper presents a comprehensive examination of the taxation of pensions and discusses the optimal responses of households to the incentives created by the tax system.
ER  -