401(K) Plans and Tax-Deferred Saving

This paper examines the role of 40 1(k) plans in retirement saving by U.S. households. It charts the rapid growth of these plans during the 1980s; more than 15 million workers now participate in 401(k)s. Data from the Survey of Income and Program Participation are used to calculate 401(k) eligibility and participation rates by detailed age and income categories. For virtually all groups, 401(k) participation rates conditional on eligibility are much higher than take-up rates for IRAs, suggesting some important differences between these saving vehicles. We consider the interaction between 401(k)s and IRAS, and show that since 1986, only one-fifth of 401(k) contributors have also made IRA contributions. Some 401 (k) eligibles who make limit contributions to their IRAs do not make 401(k) contributions. We also explore whether contributions to 401(k) plans represent "new saving." Comparing the net worth of households that are eligible for 401(k)s with that of households that are not eligible, and comparing the net worth of households that have been eligible for 401(k)s for many years with those who have been eligible for short periods, suggests that 401(k) saving has a negligible effect in displacing other private saving.