The Effects of Income Tax Timing on Retirement Investment Decisions

Content Provider	Semantic Scholar
Author	Stinson, Shane R. Doxey, Marcus M.
Copyright Year	2019
Abstract	In a controlled online experiment, we find evidence that the timing of taxes on retirement income affects taxpayers’ investment decisions such that tax-deferred plan participants under-adjust for future tax burdens and overestimate their future wealth compared to Roth participants. As a result, when presented with a specific, after-tax monetary goal, Roth account holders invest more in higher-risk, higher-return assets than tax-deferred account holders. We investigate four aspects of this investment context that could eliminate these differences: 1) changing the retirement goal to a non-specific “do-your-best” goal, 2) reframing specific goals in nominally higher pre-tax dollars, 3) prompting participants to explicitly estimate future taxes due on retirement savings, and 4) providing performance feedback. While we find each intervention reduces differences between Roth and tax-deferred plan participant behaviors, only goal reframing and explicitly prompting future tax-estimations encourage tax-deferred plan participants to invest in risky assets to the same degree as Roth participants.
File Format	PDF HTM / HTML
Alternate Webpage(s)	https://www.sc.edu/study/colleges_schools/moore/documents/accounting/stinson_doxey_and_rupert.pdf
Language	English
Access Restriction	Open
Content Type	Text
Resource Type	Article