Savings and Retirement: How large are the tax expenditures for retirement saving?
Provisions in the tax code designed to encourage retirement saving cost the U.S. Treasury billions of dollars in forgone revenue each year. Provisions of this type, which reduce tax revenue for the sake of promoting other public goals, are called tax expenditures. Of all the tax expenditures in the tax code, the one allowing tax-free employer contributions to employee pension plans is the second largest, costing $108.6 billion in 2007 according to estimates by the congressional Joint Committee on Taxation. All of the retirement saving incentives in the tax code together amounted to $133.8 billion in tax expenditure in that year and $760.3 billion over five years.
- The second-largest tax expenditure for retirement saving is the exclusion of contributions to and earnings in Individual Retirement Accounts, both Roth IRAs and traditional IRAs. This tax expenditure is an estimated $15.5 billion in 2007 and $94.1 billion over five years, significantly less than the cost of employer-sponsored pensions. The retirement saving expenditure for Keogh plans, which cover self-employed workers, amounted to $8.8 billion in 2007 and $54.5 billion over five years.
