Wharton Pension Research Council Working Papers


How Would 401(k) ‘Rothification’ Alter Saving, Retirement Security, and Inequality?

Document Type

Working Paper

Date of this Version



The US has long incentivized retirement saving in 401(k) and similar retirement accounts by permitting workers to defer taxes on contributions, levying them instead when retirees withdraw funds in retirement. This paper develops a dynamic life cycle model to show how and whether ‘Rothification’ – that is, taxing 401(k) contributions rather than payouts – would alter household saving, investment, and Social Security claiming patterns. We show that these changes differ importantly for low- versus higher-paid workers. We conclude that moving to a system that taxes pension contributions instead of withdrawals will lead to later retirement ages, particularly for the better-educated. It also would reduce work hours and lifetime tax payments and increase wealth and consumption inequality. In addition, we show how these behaviors would differ in a persistently low interest rate environment versus a more “normal” historical return world.


pension taxation, 401(k) plan, retirement, saving, Social Security claiming, retirement income, minimum distribution requirements, inequality

JEL Code

G11, G22, D14, D91

Working Paper Number



The research reported herein was derived in whole or in part from research activities performed pursuant to a grant from the U.S. Social Security Administration (SSA) funded as part of the Retirement and Disability Research Consortium. The opinions and conclusions expressed are solely those of the authors and do not represent the opinions or policy of SSA or any agency of the Federal Government, or any of the other institutions with which the authors are affiliated. Neither the United States Government nor any agency thereof, nor any of their employees, makes any warranty, express or implied, or assumes any legal liability or responsibility for the accuracy, completeness, or usefulness of the contents of this report. Reference herein to any specific commercial product, process or service by trade name, trademark, manufacturer, or otherwise does not necessarily constitute or imply endorsement, recommendation or favoring by the United States Government or any agency thereof. This research is part of the NBER Aging program and the Household Portfolio workshop.

Copyright/Permission Statement

All findings and conclusions expressed are those of the authors and not the official views of the MRDRC, the Social Security Administration, or any of the other institutions with which the authors are affiliated. This research is part of the NBER Aging program and the Household Portfolio workshop. © 2020 Horneff, Maurer, and Mitchell. All rights reserved.


The authors acknowledge research support for this work from the Michigan Retirement and Disability Research Center (MRDRC), the German Investment and Asset Management Association (BVI), and the Pension Research Council/Boettner Center at The Wharton School of the University of Pennsylvania. We also thank the initiative High Performance Computing in Hessen for granting us computing time at the LOEWE-CSC and Lichtenberg Cluster. The authors also thank Anna Maria Maurer for helpful comments.



Date Posted: 30 October 2019