The effect of credits on optimal tax-deferral strategies

Authors

  • Terrance Jalbert University of Hawaii at Hilo
  • Justin Clayton University of Michigan
  • Eric Rask United States Coast Guard, Honolulu

DOI:

https://doi.org/10.61190/fsr.v16i1.4873

Keywords:

Individual retirement account, Tax deferral, Retirement planning

Abstract

This paper examines how the Saver’s Tax Credit changes optimal tax-deferral choices of individ- uals. We identify optimal tax-deferral strategies in the presence of tax-deferral credits and changing tax regimes. We also develop equations for the rate of return at which investors will be indifferent between taxed and tax-deferred investment. The results indicate that tax credits and the timing of future tax changes have a large impact on optimal tax-deferral choices. Individuals can use the results presented here to make more informed tax-deferral choices. The results also provide insight into optimal individual behavior when employers match pension contributions.

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Published

2007-03-31

Issue

Vol. 16 No. 1 (2007): FSR Spring 2007

Section

New Original Submission

License

Copyright (c) 2007 Academy of Financial Services

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How to Cite

The effect of credits on optimal tax-deferral strategies. (2007). Financial Services Review, 16(1), 41-54. https://doi.org/10.61190/fsr.v16i1.4873