Abstract

Private retirement plans have become an increasingly important component of household wealth in the United States, with nearly two-thirds of Americans having access to employer-sponsored defined contribution plans. These plans have significant tax advantages, as both employee and employer contributions are tax-exempt, while the returns remain untaxed until their withdrawal during retirement. We develop a quantitative lifecycle model that incorporates both private and public pension systems, as well as a detailed tax-and-transfer system. Preliminary results show that our model is able to replicate key empirical regularities, such as the observed distribution of private retirement wealth by age and income, particularly for high-income earners. We evaluate policy reforms that consider alternative tax treatments for private pensions and their interaction with the income tax and public pension systems, contributing to the debate on the optimal design of retirement savings incentives. These exercises will enhance our understanding of how different interconnected parts of the tax and pension systems shape the level of inequality and aggregate distortions in the U.S. economy, allowing us to design more efficient and equitable systems of redistribution and social insurance.